Hong Kong Inflation Accelerates to 6.1% on Food Costs

By Nipa Piboontanasawat

July 21 (Bloomberg) -- Hong Kong's inflation accelerated in June to the fastest pace in four months as food and energy costs climbed.

Consumer prices rose 6.1 percent from a year earlier, the government said today on its Web site, after gaining 5.7 percent in May. That compared with the 5.8 percent median estimate of 15 economists surveyed by Bloomberg News.

The yuan's 6.9 percent gain against the Hong Kong dollar this year has added to rising costs for food imported from mainland China. Chief Executive Donald Tsang last week proposed HK$11 billion ($1.4 billion) of inflation relief, including electricity subsidies and a food allowance for the poor, saying that ``extreme times'' call for ``extreme measures.''

``The package is meant to relieve the pain,'' said Kevin Lai, senior economist at Daiwa Institute of Research in Hong Kong. ``There will only be additional pressure for prices to rise as the government spending translates into higher demand.''

Food prices rose 11.3 percent in June from a year earlier and utility costs increased 7.4 percent, the government said. Rents climbed 6.3 percent.

Truck and minibus drivers parked their vehicles to block roads in the Central district on June 10 to protest fuel prices. Transport workers for Watsons Water, a subsidiary of Hutchison Whampoa Ltd., started a strike today, demanding higher wages because of inflation, Radio Television Hong Kong reported.

Property Rates

The government has waived property rates for the second and third quarters of 2007, the whole of 2008 and the first quarter of 2009. Last week's proposals include wiping two more months' rent for public-housing tenants. The government had already foregone one month's rent this year.

Hong Kong's economy expanded 7.1 percent in the first quarter, the fastest pace in two years. For the six months through June, consumer prices climbed 5.1 percent from a year earlier. February's 6.3 percent inflation was the fastest in more than a decade.

Central banks across Asia are grappling with rising inflation and the prospect of weaker export demand as global growth slows.

India's inflation is the fastest in more than 13 years and China's consumer prices rose by the most since 1996 in the first six months. Malaysia's rate may have reached a 26-year high after the government raised fuel prices, according to comments by a government minister today.

Purchasing Power

Hong Kong's monetary-policy options are limited because its currency is linked to the U.S. dollar and the city's base lending rate to banks tracks interest-rate moves by the U.S. Federal Reserve. Unemployment is also at a decade low, pushing wages higher.

``Fast-rising prices have eroded purchasing power and weighed on consumer spending,'' said Wang Qian, an economist at JPMorgan Chase & Co. in Hong Kong. ``This has intensified concerns about the growth outlook against the backdrop of a further downshift in global demand.''

In China, wholesale prices of agricultural goods rose 9.1 percent in June. Hong Kong imports most of its food from the mainland.

``Food costs have gone up quite dramatically and it doesn't seem like the situation is going to get better anytime soon,'' Mark Howard, the manager of the Post 97 restaurant in Central, said today. The restaurant last month raised the price of its Lavish Lunch Buffet to HK$145 from HK$135.

Hong Kong & China Gas Co., also known as Towngas, will raise its basic gas tariff by 1.4 percent from Oct. 1, the company said this month.

To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net