Hong Kong's consumer price inflation rose 3 percent year-on-year in August, the fastest rate in the past 19 months, according to figures released by the Census and Statistics Department (CSD) Tuesday.

The rise of the consumer price index (CPI) in August was also notably faster than the 1.3 percent increase seen in July, sending out a warning signal on inflationary pressure in the city.

As in July, the government also paid out rental waivers for public housing. But even taking out the effects of the government's one-off relief measures, the net underlying inflation rate in August was 1.9 percent, the same as in July.

However, as the relief payments were implemented in August 2009, the 3 percent headline reading, rather than the underlying rate, is what should be paid attention to, said Irina Fan, a senior economist at Hang Seng Bank.

Breaking inflation down by sector, the most significant increase in August were bills for electricity, gas and water - skyrocketing 60.3 percent. Many households have also already taken advantage of the government's one-off electricity charge subsidy. Food prices were up 2.5 percent and private housing rentals climbed 1.1 percent. Clothing and footwear prices rose 2.5 percent, while durable goods declined 2.5 percent.

"We see that prices in Hong Kong are at rather high levels, which was mainly pushed up by food and housing ," said Fan.

She added that as negative factors such as bad weather start to fade out, the increase in food prices - which has peaked in the past two months - is likely to begin to moderate. However, due to the booming local real estate market, private housing rental increases are likely to gather pace.

The statement released by the CSD noted that there are "some upside risks to inflation, especially if the economy continues to grow briskly and labor market conditions improve further." The statement also said that since Hong Kong imports a large proportion of its food, rising global food prices are likely to take a toll on the city.

However, the statement added that "growth in labor productivity is likely to provide some cushioning effects on overall inflationary pressures."

Hang Seng Bank predicted the city's September's inflation rate to stand at 2-3 percent, while also retaining its full-year forecast of 2.2 percent. If government relief measures are excluded, the inflation rate is likely to increase to 3.4 percent, noted Fan.

China Daily

(HK Edition 09/22/2010 page2)