Why Hong Kong’s inflation remains low?

July 13, 2022 11:03
Photo: Reuters

Former US President Ronald Reagan famously said, “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”

Inflation, like coronavirus, is hitting most people on the planet – and that is also why we are seeing an upcycle in interest rate with a rarely seen 75 basis point rate hike in June and possibly again this month.

In a way, Hong Kong is lucky because its inflation fell to a four-month low of 1.2 per cent in May, compared to its regional peer South Korea where the consumer price index surged to a 24-year high of six per cent in June due to soaring energy and food price.

Although the annual inflation rate is tipped to be around two per cent in 2022, the actual feeling of inflation is way above the barometer.

According to a local paper, prices of 25 out of 26 types of food staples went up in the past year. Only pork price fell 13.9 per cent although it started to bottom out since March.

Five out of the 25 items, including saltwater fish, freshwater fish, fruits and vegetables and egg saw their prices going up over 10 per cent.

Specifically, the average orange price soared 22 per cent went to HK$6.5 in May from HK$5.3 a year ago.

In the same period, tomato prices surged 27.7 per cent from HK$16.6 per kilogram to HK$21.2 per kilogram.

Among the four major categories, prices of clothing registered a 5.6 per cent rise, outpacing that of food, housing and transportation.

The reason why overall inflation in Hong Kong remains low is because housing, which accounted for 40 per cent in the consumer price index, dropped 0.5 per cent as private rental dropped for 19 consecutive months.

There seems to be more downside in the home market because of the rate hike worries as home prices softened in June after a rebound in April and May.

Nearly 90 per cent of the top 50 housing estates saw rentals cheaper than mortgage payments based on a two per cent mortgage rate, according to another local paper.

As such, inflation is still controllable in Hong Kong. Now, don’t you feel a bit better about getting a small pay rise this year?

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EJ Insight writer