Hong Kong’s inflation rose to its highest level in ten years last month, pushed by rising food prices and rents.
February’s consumer price index increased 6.3 per cent compared to last year, up from a 4.3 per cent increase recorded in January, and above analysts’ consensus estimates of 4.9 per cent.
A number of one-off factors drove inflation higher last month, such as the severe winter weather across most of China that restricted food supply to Hong Kong, which relies on the mainland for much of its nourishment. But economists said the underlying trend for Hong Kong’s inflation is clearly upwards.
Hong Kong is constrained in the monetary tools it has available to tackle inflation since the Hong Kong dollar’s peg to the US currency leaves it subject to the interest rate whims of the Federal Reserve.
香港科技大学(Hong Kong’s University of Science and Technology)经济学教授雷鼎铭(Francis Lui)表示，对香港而言，维持联系汇率制的理由越来越站不住脚。
Francis Lui, an economics professor at Hong Kong’s University of Science and Technology, said the argument for maintaining the peg was becoming ”more difficult” for Hong Kong to maintain.
The territory’s economic cycle is no longer synchronised with that of the US and, with the peg in place, ”all that the government can do is to ride it out. There are not many options,” he said.
There are already signs that high inflation rates combined with low interest rates are creating asset bubbles in Hong Kong.
Inflation of 6.3 per cent means the real interest rate on mortgage loans, for which most banks now charge around 3 per cent in the territory, is firmly negative. This has spurred a rapid rise in property prices, which are now approaching heights last seen during the 1997 property bubble. New mortgage loan approvals in January alone increased 30 per cent compared to the month before.
Mr Lui, however, said the developing asset bubbles were a ”rich man’s problem” and were much better than the potential inverse, which would see the Fed raising interest rates as the Hong Kong economy slowed.