Stagflation risk probably awaits Hong Kong as inflationary pressure is rising. New figures point out the increasing cost of living, driven by more expensive utility bills and a wide range of goods, according to South China Morning Post

A government spokesman said October saw “more visible year-on-year increases” in prices across various products, notably with electricity, gas, and water charges soaring 28.1 percent, clothing and footwear jumping 6.1 percent. Transport costs rose 5.7 percent, while food bills went up 2.2 percent. 

According to Census and Statistics Department data published on Monday, the overall consumer price index (CPI) recorded inflation of 1.7 percent in October year on year, compared with 1.4 percent for September and 1.6 percent in August.

That inflation rate, marking ten straight months of increases, is the highest since July, when a five-year high of 3.7 percent was recorded.

“Looking ahead, inflation pressure may go up somewhat in the near term alongside the faster increase in import prices and the economic recovery,” the government spokesman said.

The government said earlier this month that the specter of inflation threatened the city’s nascent economic recovery from the coronavirus pandemic. Its economists have set a growth target of 6.4 percent for gross domestic product.

Indeed, Hong Kong businesses have been hit with higher commodity prices on two fronts—imports from mainland China and overseas, SCMP reported.

In the third quarter of 2021, import prices climbed 6.5 percent from the same period in 2020, accelerating from year-on-year growth of 4.7 percent in the second quarter.

As the leading supplier of Hong Kong’s imports, the mainland in October underwent its fastest increase in factory-gate prices for 26 years, with those extra costs set to make products more expensive in the city.

“China faces a higher risk of stagflation and Hong Kong is likely to follow as a result of its knock-on effect,” Kevin Lai, a chief economist at Daiwa Capital Markets covering most of Asia, said, referring to the phenomenon when an economy is simultaneously hit by high inflation and high unemployment.

The cost of sourcing from overseas has rocketed in recent months, while shipping charges are growing amid a global supply chain crisis arising from the epidemic, SCMP added.

Mr. Lai said Hongkongers had yet to fully feel the effect of inflation because businesses were opting to absorb additional costs instead of passing them on to customers.

“Many retailers, for example, swallowed extra costs in order not to scare off consumers,” he explained.

Once the administration’s one-off relief measures to help Hongkongers through the COVID-19 crisis had been accounted for, the underlying year-on-year inflation rate was 1.1 percent for October.

Earlier this month, officials predicted that the full-year CPI figure would be 0.7 percent.

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