HONG KONG (XFN-ASIA) - Hong Kong's headline inflation is expected to ease towards the end of the year, aided by government measures announced last week, but underlying inflation will remain high, said Wang Qian, greater China economist at JPMorgan Chase.
'I expect to see headline inflation at about 4.0 pct towards the end of the year as the government implements its inflation relief measures,' she said.
'But underlying inflation will probably be at around 6.0 pct as inflationary pressures are likely to persist despite the palliative measures that the government is implementing,' she said.
Chief Executive Donald Tsang announced last week a package of measures that will see the government give away 11.0 bln hkd in temporary relief, mainly to the poorest segments of society.
The measures include free rent for public housing tenants for three months, subsidies for students, assistance for lower income groups to buy food and increased subsidies for utility payments.
The government announced today that the city's composite consumer price index (CPI) rose 6.1 pct year-on-year in June, compared with 5.7 pct growth in May.
The pickup in inflation since May was due mainly to faster increases in private housing rents, charges for package tours, prices of rice and bus fares, it said.
'CPI went up further in June, mainly due to the sustained increases in food and energy costs, as well as the strength of the local economy which exerted greater upward pressures on housing rents and, to a lesser extent, on prices of various goods and services,' a government spokesman said.
'The inflation outlook for the rest of the year remains uncertain, due to the volatile international food and energy prices,' he said.
'The pace of economic expansion in the period ahead will also affect the extent of domestically generated inflationary pressures,' he added.
However, the spokesman argued that inflation relief measures announced last week by Chief Executive Donald Tsang and concessions granted in the 2008-09 budget early this year would help lower inflation notably towards the end of this year.
Among the various CPI components, the largest year-on-year increase in prices in May was recorded for food, excluding meals away from home, which rose 18.9 pct.
Food items showing the large price increases were rice, up 64 pct; beef, up 50.8 pct; canned meat, up 39.2 pct; edible oils, up 32.2 pct; fresh-water fish, up 27.7 pct; and other meat, up 26.8 pct.
Electricity, gas and water were up 7.4 pct, while meals bought away from home were up 6.4 pct.
Housing costs rose 6.3 pct and transportation fees climbed 3.3 pct.
JPMorgan Chase's Wang said the rise in food inflation was understandable as Hong Kong imports most of its fresh foodstuff from China, which has also seen an inflation uptrend.
The rise in apartment rentals similarly did not present any surprise as the phenomenon actually started sometime in the middle of last year.
'What's interesting in the latest data is the increase in non-food inflation, mainly in various services-related items, such as transportation, gas, water and electricity charges,' Wang said.
'The rising cost of services shows that Hong Kong is also feeling the crunch of the crude oil prices spiral,' she said.
She noted that laymen will probably opt to look at headline inflation, which will likely trend lower from the June level following the government's implementation of its anti-inflation package.
'However, financial industry people will likely give more importance to the underlying inflation and what the trend will be in the coming months,' the economist said.
jun.concepcion@xfn.com - xfnjcc/xfnrc COPYRIGHT Copyright Thomson Financial News Limited 2008. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.
© 2008 AFX News
