Hong Kong Inflation Holds at 2.6%, Forecast to Accelerate as Rents Climb

Hong Kong’s inflation rate held above 2 percent for a straight third month in October on higher rents and food prices.

Consumer prices increased 2.6 percent from a year earlier, the same as in September, the city’s government said today on its website. That was more than the median 2.4 percent estimate of nine economists in a Bloomberg News survey.

Hong Kong policy makers have blamed the U.S. Federal Reserve’s plan to buy $600 billion of Treasury securities for contributing to price pressures in the city, which maintains a pegged exchange rate with the American currency. The government earlier this month raised its full-year inflation forecast because of a falling dollar and escalating global food costs.

“While a weakening currency exposes the highly import- dependent Hong Kong economy to imported inflation, inflationary pressures are also building on rising food and housing prices,” Joanne Yim, a Hong Kong-based economist at Hang Seng Bank Ltd., said before today’s report.

In an effort to avert a property boom and bust, officials tightened lending standards in a Nov. 19 announcement that sent the stock market tumbling today. The Hang Seng index fell 0.4 percent. Li Ka-shing’s Cheung Kong (Holdings) Ltd. fell the most in six months, and Midland Holdings Ltd., the city’s largest realtor, plunged the most in more than a decade.

Echo of China

Hong Kong’s inflation battle echoes that of China, where the highest rate in two years has prompted Premier Wen Jiabao’s government to threaten price controls and release stockpiles of food reserves.

One-off government measures such as electricity subsidies and waivers of property rates and public housing rentals might have distorted Hong Kong’s inflation numbers. Excluding such effects, inflation was 2.3 percent last month, compared with 2.2 percent in September, today’s report showed.

“Inflation in Hong Kong is likely to go up further in the near term,” in part as prices climb across the region, the government said in today’s release.

Hong Kong this month boosted its 2010 inflation estimate to 2.5 percent from an August forecast of 2.3 percent. Economic growth that reached a 6.8 percent annual pace in the third quarter has contributed to price pressures, the government said.

The International Monetary Fund said Nov. 18 that higher rents will probably push up the city’s inflation rate to about 5 percent by the end of 2011. Private home rents rose 15 percent in October from a year earlier, according to data from Centaline Property Agency Ltd., the city’s biggest privately held real- estate broker.

Keeping Peg

Financial Secretary John Tsang said yesterday the city won’t need to change its currency peg over rising risk of an asset bubble. The city’s interest-rate decisions track those of the U.S. because of the fixed exchange rate policy since 1983. He said last week the Fed’s plan had “distorted the market expectation regarding inflation.”

Three days ago, Tsang raised stamp duties and deposit requirements, and limited mortgage insurance, the toughest measures yet to rein in home values that soared 50 percent since January 2009.

To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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