Hong Kong expects to have ‘moderate’ inflation

Hong Kong’s inflation forecast for the full year will possibly remain broadly moderate at 2.1%, as the city is alleviated by some factors that have exacerbated inflation in the US and Europe, according to financial secretary Paul Chan Mo Po. 

According to his blog post released on 21 August 2022, Chan said that despite the threat of high inflation in major external markets, the situation in Hong Kong remained largely stable, with the composite consumer price index rising by 1.5% in the first half of the year. 

When asked why the city’s inflation rate is relatively low when those in Europe and the US are high at 8-10%, Chan explained that this is due to the composition of consumer spending varying from place to place, “High international energy prices have exacerbated inflation in Europe and US. However, energy and transportation items only account for about 3% of the CPI in Hong Kong, so changes in related items have relatively little impact on the overall CPI,” Chan said.  

“In addition, housing expenditures, which account for 40% of Hong Kong's consumer price index, have continued to decline recently; food prices, which account for 27%, are under the solid support and concern of the central government. Fresh food from the mainland, the supply and logistics of vegetables have remained stable, and the increase in related prices has moderated slightly from the peak in March,” Chan added.

The external situation also affects the Hong Kong market from different levels, said Chan, “The US has raised interest rates successively, and Hong Kong's interbank interest rates have followed. The overnight interest rate has risen from 0.06% in mid-March to the latest level of over 1%. The one-month interest rate, which is widely used as a reference benchmark for mortgage loans, also increased from 0.28. centiliter to 1.85 centimeters.”

Chan added that the haze of interest rate hikes and the tense geopolitical situation not only weighed on the financial market, but also weakened the growth momentum and demand of the global economy, “In addition, the cross-border transportation between Hong Kong and the Mainland has been disrupted by the epidemic. The year-on-year decline will be the third consecutive month of negative growth,” Chan said.

On a radio programme of Commercial Radio Hong Kong, Chan said he expected that consumer vouchers will boost the economy by at least 1.2%, otherwise the economy may record negative growth this year.

Chan also quoted a local university research as saying that if consumer vouchers are issued in installments, citizens will spend an average of HK$4,000 to HK$8,000 more, which will provide greater support for the economy and exert a greater multiplier effect.

Consumer vouchers also promote electronic payment, according to Chan. “Since the launch of the consumer voucher scheme last year, there have been more than seven million new personal electronic payment accounts and more than 130,000 merchants.

However, Chan also pointed out that it is too early to discuss whether to consider distributing consumer vouchers next year as the distributions this year have burdened the treasury with more than HK$60bn, as well as the economic and financial market conditions, such as decreased stamp duty and land sales, hence he insisted the government needs to be prudent in its financial management in the second half of the year.

On the other hand, Hong Kong residents have been worrying about the rate of inflation under the pandemic. TransUnion’s survey has revealed earlier that Hong Kong citizens are more concerned about the current rate of inflation due to fifth wave of the pandemic in Hong Kong.

TransUnion also found out that the financial impact of the ongoing COVID-19 pandemic is being sustained, with 81% of Hong Kong consumers reporting their household income stayed the same or decreased over the past three months in the latest results from its quarterly Consumer Pulse Survey.

The majority of consumers (95%) also said they are concerned about the current rate of inflation, which has resulted in more than half (57%) of all respondents saying they are going to make changes in their purchasing behavior. The 2022 Q2 Consumer Pulse Study surveyed 1,006 Hong Kong consumers between 26 May and 15 June 2022.

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