Inflation in Hong Kong has stayed high throughout the second quarter, and the May rate is expected to be 5.6 percent, government economist K C Kwok said yesterday.

The government will unveil the consumer price index (CPI) for May today. The gauge reflects the climbing inflationary pressure in the city.

The high oil prices may not add to the inflation, but the impact from high food prices is unknown, Kwok said after a radio program.

He attributed the city's inflation to food prices and international factors, but only certain sectors, such as transportation and aviation businesses, suffer from high oil prices.

Kwok says there's hope that the government's fiscal measures will help ease inflation.

The measures include electricity subsidies and a one-month public-housing rental waiver. Kwok said their effect will be revealed in the second half of this year.

A Reuters survey also found that inflation probably rose to 5.6 percent in May, as the price of goods and rent climbed.

If that figure holds true, it will be the second highest in a decade, next to the 6.3 percent logged in February.

April inflation hit 5.4 percent, behind food and utility increases.

"The (mainland) floods will also lead to more rises in food prices, especially in vegetables and pork," said Joe Lo, a senior economist at Citigroup. "In the near term, the domestic inflation trend is unlikely to change."

Rising underlying inflation may put pressure on low-income citizens while curbing consumers' purchasing power, particularly for people who live in rented apartments.

Rental agreements are typically renewed every two years, and private-housing rents are 20 to 30 percent higher than two years ago.

"But overall nominal income growth is roughly in line with the CPI, and that's not so bad," said Kevin Lai, an economist at the Daiwa Institute of Research.

(HK Edition 06/20/2008 page2)