Mr. Newbigging is worried that "inflation may rise here at a
•
rate ..... (that) could undermine (our) competitive
position and, therefore, the vital further development
our industrial and export base".
of
(2)
3.
Measurement of "inflation"
To begin with: what are the facts about "inflation" taking that term to be descriptive of a situation of rising prices? As an inevitable consequence of the fact that our economy has to follow a fluctuating growth path in response
to external and internal influences, prices in Hong Kong are forever changing, usually around an upward trend, though the rate of change can vary quite widely over time; and this is true whether or not the economy is operating under a fixed or
floating exchange rate regime.
4.
(a) General price level
The index used to reduce the Gross Domestic Product
in current price terms' to constant price terms (or from money values to real values), the so-called GDP deflator, provides us with a measure of changes in the general price level. My forecast for this year is that the rate of increase in the general price level, measured in this way, will not exceed 6%. This may seem a surprisingly low figure, but it is a reflection of the fact that both consumer prices and export prices are increasing at a rather lower rate than this. A rate of increase of 6% in 1978 may be compared with 8.6% in 1976 when export prices were rising sharply as the growth rate of world trade recovered from the 1974-75 recession; and it may also be compared with the average annual increase over the four year period 1972 to 1976 of 8.7%, this period representing a clearly defined cycle of economic activity.
2
/(b)
Consumer
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