XN000022-1995-06-07 — Page 66

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In recent months, consumer prices have come under greater pressure from the higher import prices, due to a weakened Hong Kong dollar in line with the US dollar, faster increases in world commodity and product prices, and the high inflation in China. The prices of goods imported from Japan, Taiwan and China have shown more distinct pick-ups. The various external factors contributing to greater imported inflation are, however, beyond the Government's control. In the circumstances, Hong Kong's importers have an important role to play in reducing the impact of imported inflation on local consumers by seeking cheaper supplies from more diversified

sources.

On locally-generated inflation, there are nevertheless some helpful developments. Following the decline in the prices of residential flats since April last year, rentals of flats have also softened more recently. This should have a dampening effect on the rental component of the CPI, albeit with a time lag. Prices and rentals for office space and shop premises have likewise moderated from their peak levels. This should have a dampening effect on the cost of doing business in Hong Kong. Labour market conditions have eased somewhat in the first quarter. This should help to relieve pressures on local resources and hence domestic inflation.

It is clear, however, that the level of inflation in Hong Kong is still high. On- going vigilance in the inflation situation is therefore necessary. Accordingly, we continue to exercise firm control over government expenditure, and avoid fuelling inflation through excessive tax cuts. We continue to restrain growth of the civil service, and seek to follow rather than lead the market in its pay increase.

For the longer term, we are working intensively to increase the supply of land and to remove bottlenecks on growth by implementing our infrastructure programmes. On human resources, we adopt a more pro-active approach in assisting the unemployed by expanding the services on job matching and placement. In addition, various training and retraining courses are run to better equip our workers with new skills required by the market. There is, moreover, a general improvement in education opportunities, particularly on tertiary education. All these measures should contribute to raising our productive capacity and efficiency, thereby enhancing our overall competitiveness and indirectly also helping to contain inflation.

End/Wednesday, June 7, 1995