TNAG-1641-FCO40-2288-Budget-of-Hong-Kong-1987 — Page 157

11.2.87

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12.

With the revival in economic activity, both the

unemployment rate and the underemployment rate declined,

to 2.2% and 1.2% respectively in the fourth quarter. We

normally regard any unemployment rate below 3.5% as

effective full employment. In practically all sectors,

happily including manufacturing, employment rose.

Earnings in most sectors increased significantly in real

terms, as the rapid increase in nominal earnings was

accompanied by only modest inflation.

13.

At 2.8%, the average rate of increase in the

Consumer Price Index (A) was lower than the rate of 3.2%

recorded in 1985. Soft world commodity prices and, in

particular, lower import prices of goods from China helped

to bring this about. But as a result of the depreciation

of the Hong Kong dollar, import prices of consumer goods

have shown more rapid increases since the second quarter

of 1986. This, coupled with firmer domestic demand, is

likely to result in some increased inflation. We have

already seen signs of this in the consumer price indices

towards the end of 1986.

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