Bloomberg News

Hong Kong’s Inflation Accelerates to 5.8% on Rental Costs

October 21, 2011

(Updates with economist’s comment in fourth paragraph.)

Oct. 21 (Bloomberg) -- Hong Kong’s inflation accelerated in September after moderating from a 15-year high the previous month, as housing rental costs increased in an economy that’s teetering on the edge of recession.

Consumer prices rose 5.8 percent from a year earlier, the government said on its website today. That compares with a 5.7 percent increase in August and the median 5.4 percent estimate in a Bloomberg News survey of 13 economists. Excluding the impact of temporary government subsidies, the underlying rate was 6.4 percent, up from 6.3 percent the previous month.

Chief Executive Donald Tsang said Oct. 12 that Hong Kong is seeing “enormous inflationary pressure” from rising wages, and announced a public-housing rental waiver to help residents cope with increasing costs. At the same time, the prospect of slower growth in the U.S. and the European debt crisis are hurting the economy by weakening export demand, Financial Secretary John Tsang said on Oct. 16.

“Inflation is showing no meaningful signs of cooling down, as solid wage growth and household spending continue to keep the economy operating close to capacity,” Donna Kwok, a Hong Kong- based economist at HSBC Holdings Plc., said before today’s report. “As business conditions soften in response to persistent global economic uncertainties, inflationary pressures will likely peak in the coming months.”

Pain of Inflation

Donald Tsang last week reiterated the government’s August estimate that the pace of increase in consumer prices will accelerate to 5.4 percent in 2011, the fastest pace since 1997, from 2.38 percent last year.

“Inflation is likely to climb up further in the near term before peaking out, as the lagged effects from earlier surges in international food prices and market rentals continue to filter through,” the government said in today’s release, adding that the recent slowdown in the increase in global commodities and food costs will help to curb price gains “in the course of time.”

Hong Kong must bear the pain of inflation to maintain the dollar peg, which deprives policy makers of an independent monetary policy, because the city may be worse off with the alternatives, John Greenwood, architect of the city’s fixed- exchange-rate system, said Oct. 13.

John Tsang announced in his February budget one-off relief measures that include electricity subsidies and waivers of property rates and public housing rents. They distort the headline inflation figures.

Average private housing rentals rose 1 percent last month from August to a record HK$20.60 ($2.65) per square foot, Centaline Property Agency, the city’s biggest closely held real estate broker, said Oct. 19, citing a survey of 85 major residential estates.

Morgan Stanley and Daiwa Capital Markets Co. say Hong Kong may have fallen into a recession in the third quarter, after the economy shrank 0.5 percent in the April-to-June period from the previous quarter.

--With assistance from Ailing Tan in Singapore, Marco Lui in Hong Kong. Editors: Nerys Avery, Ken McCallum

To contact the reporter on this story: Sophie Leung in Hong Kong at

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at

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