Thursday, March 20, 2008

Accelerated Inflation In Hong Kong

by Rohan Parker

The inflation rate in Hong Kong has risen dramatically since snowstorms led China to up the price of importing food from the mainland.

Prices for consumers have gone up by 6.3% in February, after an increase of 3.2% in January. This is the highest rate of inflation in the country since July 1997, and is higher than the 4.9% forecasted by 13 economists from a Bloomberg News survey.

Hong Kong’s dollar is pegged to the U.S. dollar, and the subsequent decline of both have led to higher import costs. Pressure was added to inflation rates as the defacto central bank followed suit of the U.S. Federal Reserve’s move to cut interest rates. Both HSBC Holdings Plc and Hang Seng Bank Ltd. lowered their borrowing costs yesterday, the seventh such reduction since September last year.

According to the chief economist at the Bank of East Asia Ltd., Paul Tang, the inflation rate for Hong Kong is not expected to reduce this year, but to increase even further.

2007 saw inflation in Hong Kong sit at around 2%. This year, inflation is expected to rise to 3.4%, according to the Financial Secretary, John Tsang. If it weren’t for tax relief to counter balance, inflation would likely be around 4.8%.

February was not a good month for China either, whose consumer prices hiked up by 8.7% for that month alone, which is the fastest increase since 1996, which was again due to uncharacteristically heavy snowfalls.

As the Hong Kong dollar experienced at 3% drop against the yuan earlier this year, and the country imports most of its food from China, the forecast isn’t pleasant at this stage.

 

 

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