Hong Kong: Inflation Eased To 5.7% In August22 September, 2011, 19:11. Posted by Zarathustra
Tags: Economy, Hong Kong, Inflation
Inflation in Hong Kong eased in August. Headline consumer price index (CPI) rose by 5.7% compared to a year ago, falling from 7.9% rise in July. Excluding the effect of government one-off relief measures, the core inflation was 6.3% yoy, which is higher than 5.8% yoy in July.
The devil is in the detail here. Last month, we have already flagged that when you look at the actual consumer price index instead of the year-on-year changes of consumer prices, CPI has fallen slightly in July compared to June. This month, the actual CPI has fallen even further. On a month-on-month basis, CPI has fallen by 2.1% in August after falling by 0.2% in July. As the government press release also pointed out, the three-month moving average of the month-on-month CPI inflation was –0.6%, while netting government relief measures, the moving average was 0.5%, unchanged from previous month.
Source: Census and Statistics Department
The apparently high headline rate of inflation (yoy) in July was largely due to the base effect as there was a major government relief measure in July of last year. Looking at the month-on-month changes, we can see that consumer prices have been falling for 2 straight months. Now it is still hard to be sure whether the fall in consumer prices in the past two months are temporary or a genuine reversal of the trend, and I still hesitate to read too much from two months of data here, but certainly I am not surprised if this is a reflection of a reversal of trend.
Here, my central guess is that the Hong Kong economy has significant probability of entering into recession, and we have already been seeing slowing in activities and the seemingly-weekly stock market crash. Strong US dollar and weakening of Hong Kong dollar within the trading band also reflect a possibility of money outflow, which does not bode well for the economy at this point. As such, I do expect inflation to come down significantly in the later part of this year or early next year.