The Economy ❘ 63
Price Movements
After the return to positive inflation in late 2004, consumer price inflation. continued to climb over the course of 2005, in tandem with the increase in wages. and rentals and the economic upswing. Although, inevitably, there was some pressure on domestic costs they were contained throughout the year, especially seen. in conjunction with the very strong economic growth over the previous two years. The imminent pressure on economic resources was mitigated by solid expansion in production capacity and rapid labour productivity growth. The soaring oil prices had some effect but, overall, the outside pressure on prices was limited owing to the modest appreciation of the Hong Kong dollar after the first quarter, and also some reduction in oil prices in late 2005.
Reflecting these underlying developments, consumer price inflation in terms of the Composite Consumer Price Index (CPI) climbed modestly from 0.4 per cent in the first quarter of 2005 to 0.8 per cent in the second quarter, then rose further to 1.4 per cent in the third quarter and 1.8 per cent in the fourth quarter. For the year as a whole, Composite CPI inflation was only a modest 1.1 per cent, the first year of inflation since 1999. (The respective figures for the fourth quarter and for 2005 as a whole are 1.3 per cent and 1.0 per cent by reference to the new 2004/05-based series). The decline in the GDP deflator, a broad measure of overall changes in prices, tapered off in the first half of 2005, turned positive by the third quarter and then picked up slightly in the fourth quarter (Chart 16).
Chart 16
Main inflation indicators (year-on-year rate of change)
Per cent
4
2
O
-2
-4
-6
Composite CPI
GDP deflator
-8
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2001
|
2002
1
2003
2004
2005
There was only a modest increase in Composite Consumer Price Index in 2005. The GDP deflator also showed a small increase in the second half of the year.