Life of Guangzhou - Food Costs Fuel Third-month CPI Rise in HK

Consumer prices in Hong Kong increased for the third straight month last month, as food costs continued to surge affected by price rises in the mainland where inflation has reached decade highs.

The Consumer Price Index edged up to 1.6 percent in August, after CPI of 1.5 percent in July and 1.3 percent in June, according to figures released yesterday by the Census and Statistics Department.

Overall inflation continued to be distorted by the rates concession granted by the budget for the second and third quarters - that is, April through September. Excluding this factor, underlying inflation increased to 2.7 percent, up from 2.6 percent in July.

Rising cost of food items was cited as the main cause of higher consumer prices in August. Food prices last month jumped 4.6 percent year-on-year from 3.6 percent in July. Food, excluding meals bought outside, jumped 7.8 percent, compared with 5.8 percent in July, with prices of pork alone surging 31.4 percent, the government said.

Food accounts for 27 percent of Hong Kong's CPI basket, and the city imports most of its food from the mainland, where consumer prices shot up to a 10-year high of 6.5 percent in August, driven largely by food prices.

Reduction in public housing rental from August partly helped offset the overall impact of the food price surge.

Headline housing component rose 0.4 percent year-on-year, falling from 1.2 percent in July, as a result of the cut in public housing rentals by the Hong Kong Housing Authority.

With the price-alleviating effect of the property rate concession ceasing after this month and a continuing rise in food prices, inflation is likely to continue edging higher, economists said. "Once the special effects on housing have vanished, we will start to see inflation reach close to the 3 percent level and continue to grow further," said Paul Tang Sai-on, chief economist at Bank of East Asia (0023).

(By Gita Dhungana)