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THURSDAY, NOVEMBER 16, 1978
INFLATIONARY THREAT VERY REAL
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SAYS FINANCIAL SECRETARY
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THE FINANCIAL SECRETARY, THE HON. PHILIP HADDON-CAVE, SAID TODAY THERE WAS A VERY REAL THREAT THAT AN INFLATIONARY SITUATION WAS NOW DEVELOPING IN HONG KONG.
WINDING UP THE ANNUAL POLICY DEBATE IN THE LEGISLATIVE COUNCIL TODAY, MR. HADDON-CAVE SAID THE INFLATIONARY THREAT WAS DUE FIRST TO THE EXTENT TO WHICH THE ADJUSTMENT MECHANISM HAD BEEN OPERATING THROUGH THE DEPRECIATION OF THE EXCHANGE RATE- AND SECONDLY, TO AN IMBALANCE BETWEEN THE SUPPLY OF, AND DEMAND FOR, REAL RESOURCES, PARTICULARLY IN CERTAIN SECTORS.
HE POINTED OUT THAT THE DEPRECIATION OF THE HONG KONG DOLLAR WE HAVE EXPERIENCED IN THE PAST 20 MONTHS OF BETWEEN 18 AND 19 PER CENT HAD HELPED THE EXPORT SECTOR TO IMPROVE ITS COMPETITIVENESS, BUT THE DOMESTIC PRICE INCREASES WE HAVE SO FAR EXPERIENCED HAD BEEN REALLY VERY MODEST.
HE ALSO NOTED THAT THERE HAD BEEN A SIGNIFICANT DISCREPANCY BETWEEN THE RATE OF INCREASE IN IMPORT PRICES AND THE RATE OF INCREASE IN THE RETAIL PRICES OF CONSUMER GOODS WHICH SUGGESTED THAT INCREASES IN IMPORT PRICES MIGHT 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 EXCHANGE TERMS,+ HE SAID.
+BUT WHAT IS REALLY WORRYING ME, AND OBVIOUSLY SOME HONOURABLE MEMBERS TOO, IS THE PRESENT IMBALANCE IN THE SUPPLY AND DEMAND FOR, REAL DOMESTIC RESOURCES OF LAND, LABOUR AND CAPITAL.+
MR. HADDON-CAVE SAID THERE WAS NO DOUBT THAT DEMAND WAS OUT-RUNNING AVAILABLE SUPPLY WITH THE RESULT THAT PRICES WERE BEING COMPETITIVELY BID UP AND RETAINED IMPORTS WERE GROWING TWICE AS FAST AS DOMESTIC EXPORTS. THE IMBALANCE WAS
PARTICULARLY NOTICEABLE IN THE CASE OF THE PROPERTY MARKET, AS THERE WAS NO EVIDENCE THAT PRIVATE SECTOR DEMAND FOR NEW PROPERTY WAS YET BEING SATISFIED.