Tue, Aug 23, 2011 - Page 11 News List

Hong Kong’s inflation rate surges to 7.9 percent

PRESSURES RISE:Businesses have started putting prices up, the cost of food has increased 7.4 percent since last July and private rents have risen 7.6 percent

Bloomberg

Hong Kong’s inflation surged to 7.9 percent last month, the fastest pace since 1995, on food, rents and a distortion caused by a government housing subsidy.

The gain from a year earlier compared with the median 8.2 percent estimate of 13 economists in a Bloomberg News survey and a 5.6 percent increase in June. The latest number, reported on a government Web site yesterday, was boosted by a waiver of public housing rentals in July last year that wasn’t repeated in the same month this year.

“Underlying inflationary pressure is still on the rise,” said Kelvin Lau (劉健恆), an economist at Standard Chartered in Hong Kong.

Excluding the effect of the waiver, inflation would likely have been less than 6 percent last month, Lau said.

McDonald’s Corp, subway operator MTR Corp and Hong Kong Disneyland Resort are among businesses raising prices. Food costs jumped 7.4 percent last month from a year earlier as pork prices climbed, the government data showed. Private-housing rentals rose 7.6 percent.

The absence of the subsidy meant public housing rents rose more than 3,000 percent, according to the data.

The government said that inflation is likely to remain “notable in the near term” for reasons including elevated global food costs. Excluding distortions from government subsidies, inflation was 5.8 percent last month, compared with 5.5 percent in June, the report showed.

The Hang Seng Index rose 0.5 percent yesterday and is down about 14 percent since Aug. 1 as a faltering US economy and a failure to resolve the European sovereign debt crisis undermine confidence and dim the outlook for global growth.

“Investor sentiment is still very weak as people are still not convinced that the market has bottomed,” said Francis Lun (藺常念), managing director at Lyncean Holdings Ltd, an investment holding company in Hong Kong. “People are unconvinced we have seen the worst of Europe’s debt crisis.”

In Hong Kong, rising prices and a widening wealth gap may stoke social discontent. Hong Kong Chief Executive Donald Tsang (曾蔭權) has failed to win backing from a majority of the public for more than a year, according to a University of Hong Kong survey tracking his popularity since being appointed in 2005.

Low-income earners, like Nay Leung, 49, an immigrant from Guangdong Province who works as a cleaner and a food deliverer, say that rising prices for everything from food to school books are too much to bear.

“I feel more and more like I am living like a beggar,” Leung, who lives in Kwun Tong district, said in an interview in June.

A record 1.26 million Hong Kong residents lived in poverty as of the middle of last year, according to the Hong Kong Council of Social Service, a government advisory group. Wages adjusted for inflation are lower now than a decade ago.

A currency peg to the US dollar means Hong Kong’s official interest rates move in lock-step with those of the US Federal Reserve, limiting the city’s ability to tackle inflation.

The Fed has pledged to keep interest rates at a record low through mid-2013.

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