food items. rentals.
•
ises of about 10%.
ciable
transportation.
recorded
appre-
is
mainly
and services stili
Their development has not shown any High inflation in Hong Kong improvement yet. caused by seven types of factors:
the linked ex-
(a) the government's loosing monetary policy, change rate system and the negative real interest rate
ment;
government's
expansionary
(b) the building of the new airport);
(c)
(d)
(e)
(f)
(9)
The
fiscal
policy
environ-
(including
economic restructuring and labor 'shortage"; "indexation" of public and private sectors wage policy; firm inflationary expectation of the general public; pricing adjustment mechanize of public utilities; and other external factors.
taxes
government's policy to limit the increase of indirect
inflation. and fee charges has some apparent effect on reducing
workers, Another policy of importing the third group of foreign
is also curbing wages. amid a mild increase in unemployment rate,
break- major policy
Nevertheless,
throughs.
there
have been no other
to
rate was
which is
In fact,
some of the monetary developments are contradictory
the efforts.
prime For example, the anti-inflation reduced twice in May 1992 alone by 1.5 percentage point, obviously incompatible with the fighting inflation policy.
anti-
Additionally, the government argues that the large fiscal surplus
of an part recent years is a significant
argument we consider this
recorded in inflationary policy.
However,
dubious,
e
because (a) for many years the large fiscal surplus
by result of mis-estimation rather than
in 1991/92,
surplus was the original
very
was
estimated
mainly
example
design (for
to be
over HK$20
sources
HK$1.4 billion as compared to the actual surplus of billion); and (b) one of the government's major revenue
is
land sales. The economic impact of land sales is similar to debt financing. Unless the value of the fiscal surplus is larger than the income from land sales, the resulting "surplus" be considered to have anti-inflationary effects.
cannot
.pa
Under the
to
the
about
which
an improving local low interest environment, very economy, booming Pearl River Delts, increasing speculative activ- ities, recovering of the Western economies, and building of new airport, we think the inflation rate could return 11% in the second half of 1992. The high inflation rate,
will particularly is very likely to be sustained before 1997,
and will also affecting the livelihood of the lower income group, weaken the administrative capability of the SAR government 1997. In this respect, the government should consider the lowing long-term measures to fight inflation:
Central Bank,
with
(a) establishing a prices as one of its major responsibilities;
after
fol-
stabilizing domestic
system to one
(b) changing the current linked exchange rate