XN000022-1980-04-16 — Page 3

WEDNESDAY, APRIL 16, 1980

DOMESTICALLY GENERATED INFLATION WILL EASE OFF

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THE FINANCIAL SECRETARY, THE HON SIR PHILIP HADDON-CAVE SAID TODAY (WEDNESDAY) THERE IS REASON TO BELIEVE THAT DOMESTICALLY GENERATED INFLATION WILL EASE OFF.

AT THE BUDGET DEBATE TODAY, SIR PHILIP SAID THOUGH CONSUMER PRICES HAD IN THE FIRST TWO MONTHS OF THIS YEAR CONTINUED TO INCREASE RAPIDLY, THE SITUATION WAS LESS WORRYING THAN THE ONE HONG KONG FACED A YEAR AGO, EVEN THOUGH THE RATE OF INCREASE IN CONSUMER PRICES WAS LESS THAN THAT BEING EXPERIENCED NOW.

+THE REASON IS THAT A BETTER BALANCE IS BEING ACHIEVED BETWEEN THE DEMAND FOR AND SUPPLY OF DOMESTIC RESOURCES, PARTICULARY SO IN THE LABOUR MARKET.+

FURTHERMORE, HE SAID, THE VERY RAPID GROWTH RATE OF DOMESTIC EXPORTS EXPERIENCED IN 1979 WAS UNLIKELY TO BE SUSTAINED THROUGH 1980 AND ACTIVITY IN THE MANUFACTURING SECTOR WOULD NOT CONTRIBUTE TO DOMESTIC INFLATION THIS YEAR AS IT DID IN 1979.

SIR PHILIP SAID WHILST THE EASING OF THE PRESSURE OF DEMAND ON DOMESTIC RESOURCES WAS TAKING TIME TO WORK THROUGH THE SYSTEM TO DAMPEN DOWN DOMESTICALLY GENERATED INFLATION, WORLD PRICES HAD BEEN ACCELERATING AND WERE EXERCISING AN ADDITIONAL UNFAVOURABLE INFLUENCE ON PRICES IN HONG KONG.

HE AGREED THAT THERE IS NOT MUCH HONG KONG COULD DO IN THE FACE OF IMPORTED INFLATION.

HOWEVER, HE POINTED OUT THAT MOVEMENTS IN THE EXCHANGE VALUE OF THE HONG KONG DOLLAR IN THE PAST NINE MONTHS HAVE BEEN USEFUL IN DAMPENING THE RATE OF INCREASE IN IMPORT PRICES WITHOUT SERIOUSLY HAMPERING EXPORT COMPETITIVENESS.

TURNING TO OTHER POINTS RAISED BY UNOFFICIAL MEMBERS, SIR PHILIP SAID HE DID NOT THINK THERE WAS A NEED FOR THE GOVERNMENT TO CONSIDER FINDING WAYS TO DISCOURAGE THE COMMUNITY'S DESIRE TO CONSUME AND, AT THE SAME TIME ENCOURAGE SAVING, BECAUSE HE DID NOT EXPECT THE GROWTH RATE OF TOTAL FINAL DEMAND THIS YEAR TO BE OUT OF LINE WITH THE GROWTH RATE OF GDP NOR DID HE EXPECT THE GROWTH RATE OF PRIVATE CONSUMPTION EXPENDITURE TO BE OUT OF LINE WITH THE GROWTH RATE OF REAL INCOME THIS YEAR AND LAST YEAR.

IN FACT, HE SAID, THE GROWTH RATE OF PRIVATE CONSUMPTION EXPENDITURE IN 1979, AT 7.7 PER CENT WAS ACTUALLY LESS THAN WHAT ONE WOULD EXPECT IT TO BE, GIVEN THE GROWTH RATE OF REAL

INCOME IN 1978 AND 1979 OF 9.2 PER CENT AND 11.1 PER CENT RESPECTIVELY.

HOWEVER, HE COULD NOT RULE OUT THE POSSIBILITY OF A SUDDEN ACCELERATION IN THE GROWTH RATE OF PRIVATE CONSUMPTION EXPENDITURE THIS YEAR AND FOR THIS AND OTHER REASONS, HE ASSURED COUNCIL THAT THE GOVERNMENT WOULD CONTINUE TO MONITOR THE COURSE OF HONG KONG'S ECONOMY CLOSELY.

TURNING TO