Hong Kong sitting on an inflation time bomb

THE Hong Kong General Chamber of Commerce (HKGCC) yesterday cautioned against complacency in fighting inflation and warned that Hong Kong could be sitting on an inflation time bomb.

HKGCC chairman William Fung said: ''We believe restraint of inflation must remain a key plank of the Government's economic policy if Hong Kong is to maintain its competitiveness and attractiveness as an international business centre.

''We are concerned that there appears to be community complacency on the issue following the recent moderation in the inflation rate and we believe that such complacency is misplaced,'' he said.

Faster world economic growth, higher commodity prices and rapidly changing exchange rates might mean that Hong Kong was sitting on an inflation time-bomb.

Despite the moderation of inflation, Hong Kong's inflation rate was still about four to five percentage points above that of its major markets and rival economies in the region, with the exception of China, owing to the global decline in inflation, said Mr Fung in a paper submitted to Financial Secretary Hamish Macleod.

Mr Fung said that simultaneous emergence of a series of events had caused prices to escalate in the community.

''They have included relatively rapid economic growth, a fully employed economy leading to capacity restraints - most notably the tight supply of land and labour - direct and indirect Government action [such as] fares, taxes and charges and overall Government spending levels and restraints on property availability, especially residential property.'' He said that structural change could no longer be used as the reason for the high level of inflation in the territory.