than the trade-weighted index (7). But it is unlikely that the price effects of the depreciation of the Hong Kong dollar in, say, the last six months of 10% have yet filtered completely
through to the retail level. On the other hand, as pointed
out in this year's Half-yearly Economic Report, since mid-1977 there has been a significant discrepancy between the rate of increase in import prices and the rate of increase in the retail prices of consumer goods (8), which suggests that increases in import prices may not always be matched in full by increases at the retail level. Nevertheless, we must be careful not to
assume that an adjustment process which has been relying heavily on a depreciation of the exchange rate can go on working relatively painlessly. This is particularly so in present circumstances, when domestic sector activity is so strong that
offsetting cost increases are allied with a diversion of
resources away from the export sector to meet domestic demand at a time when exports are becoming more competitive in foreign
currency terms.
(7) Effective exchange rates of the Hong Kong dollar:
Trade-weighted Import-weighted(*)
Export-weighted(*)
31.12.7
99.1
99.5
98.7
30.12.72
98.1
97.5
98.8
31.12.73
103.7
102.0
105.8
30.12.74
105.9
104.6
107.9
30.12.75
107.4
105.7
109.4
31.
12.76
114.4
111.5
118.0
31.12. 77
106.6
102.2
112.5
31.
1.78
107.0
102.5
112.9
28. 2.78
105.2
100.5
111.6
31. 3.78
103.8
98.6
110.9
29.
4.78
104.6
99.4
111.7
31. 5.78
104.0
98.8
111.2
30. 6.78
101.6
95.7
109.6
31.
7.78
98.6
92.3
107.3
31. 8.78
96.7
90.6
105.1
30.9.78
95.3
89.3
103.7
31.10.78
90.7
84.8
98.9
Note: (*)
New, hitherto unpublished, series.
(8) Paragraph 85.
/ (b)
Pressure
8