'That, as the inflation cycle has returned recently, quite a number of public transport operators and public utilities have applied for increase in fares or charges, and the prices for food and oil supplies continue to rise, thus aggravating the burden on the public, this Council urges the Government to adopt measures to cope with inflation so as to alleviate the pressure of livelihood on the public; such measures should include: ...' Legislative council motion, Yeung Sum, Democrats And then followed a sampling of the usual Democratic Party wish list based on the notion that money grows on trees. Public transport operators, says Mr Yeung, should be allowed fare increases only after an assessment of 'affordability'. What exactly this means and how anyone can actually do such a study is beyond me but such details clearly do not bother Mr Yeung. He also wants the permitted return of the two power companies reduced to single digits, having obviously missed the news that this is exactly what the new regulatory arrangements will do. But he gets his real star rating when he says our government should push major food suppliers 'to ensure the supply of major food items and foodstuffs from the mainland so as to prevent the prices of food items from increasing heftily due to insufficient supply'. He can say it here if he wants but I think I know who would get a hefty shove out of the way if he were to go across the border to preach that Hong Kong should have all the pork it wants at the prices it wants when the rest of China suffers from tight pork supply and rocketing prices. Mr Yeung does, however, share some characteristics with the authorities in Beijing. He obviously believes, as they appear to do, that inflation arises from entirely mysterious causes but can be restrained by telling people that they are not allowed to raise prices. It's a doomed remedy. It has never worked and it never will. The only workable remedy at the moment lies in allowing wages to go up rather than in trying to force prices to go down. Let me explain. The red line on the first chart represents a trade-weighted exchange rate index of the Hong Kong dollar, up for many years because the Hong Kong dollar is pegged to the US dollar and the US dollar was strong. It is now down for almost six years because the US dollar has been weak over the period. While the US dollar was strong it contributed to keeping inflation in Hong Kong down. Now that it is weak it contributes to pushing inflation here up, all the more so because our economy is growing strongly at the moment. In other circumstances this would have pushed our currency stronger. But, because of the peg, it can't happen. Thus the pressure that might otherwise have been absorbed by the exchange rate is instead reflected in stronger economic growth and rising inflation. This is the exact reverse of what happened to us in 1998. Then the peg forced us into a prolonged bout of deflation. Now it is pushing us into inflation. The peg has generally been very good for the Hong Kong economy but occasionally it does have these wrenching effects on us. Now look at that first chart again. When the US dollar was strong it not only slowed our economic growth and restrained inflation but it contributed to pushing unemployment up. At the moment we have the reverse. A weak US dollar is boosting our growth rate and fast helping push Hong Kong unemployment down. And here is a really elegant contrast for you. The second chart shows you the relationship between unemployment and wage growth in Hong Kong. What we have had here for the past 10 years is a mirror image. When the jobless rate goes down, wage growth goes up, and when the jobless rate goes up, wage growth goes down. It is such a close match that I am sure that we can rely on it in the future. And there you have your remedy, Mr Yeung. You can do nothing about inflation here but you can watch wage growth rise to match it as the inflationary boom gives us full employment. There is only one thing you have do to make it happen. Make sure that you pronounce a loud strong 'No, Henry!' when anyone, or a certain someone, proposes that we open our borders wide to labour migrants so that employers don't have to pay up.