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On a matter of budgetary strategy, I would also like to remind Members that the Governor in his Policy Address proposed a convincing way to reassure Hong Kong and our trade and investment partners of our commitments to financial stability and to an open economy. This would be for Members to endorse the simple rule that government expenditure should increase over time only in line with the trend growth rate of economic growth. I hope Members will give further careful consideration to this suggestion.
Members have also expressed their and the community's legitimate concerns about inflation, unemployment and the gap between the rich and poor. They deserve, and receive, our continued attention.
Inflation
Our current level of inflation remains relatively high. However, allowing for some short-term volatility in consumer prices, the underlying trend during the course of the year has been downward. The year-on-year rate of increase in Consumer Price Index (A) was 9.5% in the first quarter, 9.2% in the second and 8.6% in the third. As the US dollar gathers strength, inflationary pressures from imports are falling. Locally-generated inflationary pressures are also easing up. We have stabilised the property market through the package of measures we announced last year, we have also stepped up our efforts to provide more land for development.
Inflationary pressures generated by the labour market have eased. As we move from a manufacturing to a service-based economy, we have experienced a structural change in the labour market, resulting in a temporary skills mismatch. In addition, the labour supply is growing this year more rapidly than demand for workers as more former residents return to Hong Kong and the new immigration quota brings in young people of working age from China.
Land and labour are the key resources for our overall production capacity. By ensuring a larger and more stable supply of both for the future, we will help to stabilise costs, contain inflation and maintain our competitive edge.
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