Hong Kong's Consumer Price Index (CPI) will stand well above 5 percent in the coming month but will drop in the second half this year due to better food supply and slower appreciation in yuan, said analysts and economists.

The comments are made in response to an announcement by the Census and Statistics Department (C&SD) yesterday that Hong Kong's overall CPI rose by 5.4 percent in April over a year earlier.

The sharp increase is cushioned by large year-on-year hikes in food prices led by meat, edible oil and rice, said C&SD in a statement.

Housewives in Hong Kong find shopping in grocery for cheaper vegetables a by-gone experience. The city's CPI rose by 5.4 percent in April. CNS

A spokesman from the government pointed out that the pick-up in inflationary pressure in recent months was largely due to the upsurge in food prices, which was driven by global food inflation. The sustained strong economic growth also added pressure on prices and costs.

Analysts believe the devastating Sichuan quake will fuel the food price growth because more than 80 percent of food in Hong Kong are provided by mainland.

"Hong Kong's CPI might increase even further next month. The index has been strong since beginning this year and will stand well above 5 percent in May and June," said Linus Yip, a strategist at First Shanghai Securities.

Pork prices jumped nearly 60 percent year-on-year, the highest among all items. Beef prices soared over 50 percent and other canned meat also recorded 44.5 percent increase, according to C&SD.

Apart from food, year-on-year increases in prices were recorded for electricity, gas and water as well as meals bought away from home.

Durable goods

The government spokesman said that the inflation outlook is rather uncertain and will hinge much on the movements of food prices in the international markets, which are expected to be volatile.

The soaring international oil prices, the exchange rate movements as well as the strength of the local economy are also likely to continue to exert inflationary pressure, he said.

Taking the first four months of 2008 together, the composite CPI rose by 4.8 percent over a year earlier.

Yip expects the food price pressure will be eased in the second half this year, "along with a slowdown in yuan appreciation; the CPI will drop below 5 percent later this year."

Jun Ma, chief China economist of Deutsche Bank, predicts the CPI for the second half of 2008 will slide to about 4 percent helped by slower growth in yuan value.

"The value of yuan has been growing slowly over the last one month, which helps ease the inflation and CPI in Hong Kong," he said.

Ma thinks the earthquake will not have serious impact on mainland's food supply to Hong Kong.

The epicenter was not a agricultural base and the ravaged fields accounted for 0.02 percent of China's total cultivatable land.

The number of pigs killed during the quake only took up 0.2 percent of the country's total pork supply, according to Deutsche Bank.

(HK Edition 05/23/2008 page2)