TNAG-1483-FCO40-2037-Economic-situation-in-Hong-Kong-1986 — Page 267

CODE 18-77

INFLATION

Reference..................

11. The year-on-year inflation rate (CPI(A)) was 2.6% in this quarter, representing a further fall in the rate. This improvement has come through soft commodity prices, particularly oil, but import prices have started to rise in HK$ terms because of currency depreciation (against most major currencies, with the important exception of the Renminbi). As these higher import prices filter through there is likely to be a rise in the inflation rate.

COMMENT

12. This is a fairly encouraging picture, but further improvements will be needed if the budget forecast is to be met. This had real domestic export growth of 7.5% for 1986, and a 10% rate for the US market (representing however only a catching-up to 1984 levels after the declines of 1985). Exporters must hope that the delayed effects of improved price competitiveness are increasingly apparent during the year.

5 June 1986

Nick Hallet

N O Hallett

Economic Advisers