Bleak outlook: economists fear deflation as Hong Kong consumers prices grow at slowest pace since 2010
After Consumer Price Index rose just 3pc last year, down from 4.4pc in 2014, experts say rise in interest rates, falling property prices and continued slowdown in spending by tourists could hit city hard this year
Hong Kong consumer prices last year grew at their slowest pace since 2010, while economists fear a further deterioration in property prices and employment in the coming year could drag the city into deflationary territory.
According to data released by Census and Statistics Department, the Consumer Price Index (CPI) rose 3 cent last year – down from a 4.4 per cent rise in 2014.
The situation worsened in the past few months, with index growth in November and December easing to 2.4 per cent and 2.5 per cent respectively, mainly dragged down by falls in the prices of durable goods, clothing and footwear.
“The downward pressure [on the economy] is mounting … Hong Kong could face deflation as early as this year in the worst scenario,” said Kevin Lai, chief economist at Daiwa Capital Markets Hong Kong.
He explained that recent capital outflows would soon drive up interest rates, which could hurt consumption with people needing to pay more to cover their bank loans. When demand contracts, consumer prices move down, leading to deflation.
Paul Tang Sai-on, chief economist at the Bank of East Asia, was slightly less pessimistic, forecasting this year’s CPI growth could still stay positive at 1.6 per cent.