CODE 18-77
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107
Date: 9 March 1992
cc: Mr Broadbent
THE HONG KONG BUDGET AND INFLATION
1.
Budget measures will raise consumer prices by around 0.4 per cent in March/April. But overall, inflation should fall in the months of February, March and April as the effects of price increases early in 1991 drop out of the calculations. Inflation may fall as low as 7.6 per cent by April before rising again (see chart).
2. The main factors in the budget which will increase prices will be:
Increase in property rates +0.14% on CPI (A) Increases in duties on alcohol and tobacco 0.20% CPI (A)
Higher betting tax receipts will be approximately offset by lower taxes on soft drinks, cinema tickets and buses. assume that the increase in corporation tax has no immediate effect on prices, and likewise for changes in personal taxation.
3. Several factors which caused the index to rise sharply in early 1991 will drop out of the index. In February, the annual increase in food prices should fall sharply after the typhoon-related jump of 8 per cent in February 1991 food prices drops out (which was not subsequently reversed). The annual rate of increase of alcohol and tobacco prices will fall in March and April as the large increases in duties passed in the 1991/92 budget, and subsequently partially reversed, drop out. Also in April clothing and transport annual rates of inflation should fall markedly after hikes last April drop out.
4. Incorporating the 1992/93 budget changes and assuming that otherwise inflation follows the pattern of increases over the last three months inflation should fall as follows; January 10.5% (actual figure, Jan.92 on Jan.91), February 9.2%, March 8.4% and April 7.6%. Of course these figures could be derailed by sudden increases in prices but they give an indication of the background trend. After April there is likely to be a gradual increase again as the favourable
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