ENG-1980 — Page 65

FINANCIAL SYSTEM AND ECONOMY

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evidence from new lettings during the year was that rent control was suppressing what would otherwise be an upward trend in rents in response to an excess of demand over supply.

Inflation

The rate of inflation in 1980 was fairly rapid. The Consumer Price Index (A) averaged 16 per cent higher in 1980 than in 1979. Much of the increase, however, occurred at the beginning of the year when the delayed effect of the depreciation of the Hong Kong dollar, and of the rapid rate of increase in import prices in the first half of 1979, was still filtering through to the retail level. But consumer prices remained remarkably stable for about six months after the Lunar New Year, and increases during the rest of the year were gradual. Hong Kong's experience of inflation in 1980 only matched that of most other countries. The rate of inflation in Organisation for Economic Co-operation and Development (OECD) countries, for example, was 13 per cent for the year. Given the externally-oriented nature of the Hong Kong economy, it is unlikely that, even under a floating exchange rate regime, Hong Kong could have escaped more than partially what was happening in the rest of the world.

There is no doubt that, in recent years, inflation has been a much more influential feature of the Hong Kong economic scene. However, it must be recognised that, unlike many other economies, inflation in Hong Kong has usually been externally generated and associated with periods of sustained economic growth and relatively low unemployment

rates.

Much of the internally generated inflation experienced in Hong Kong can be traced to the strains arising from a rapid growth rate of the economy and the shifts in relative prices necessitated by it. Although the rapid growth rate in recent years, and in 1980 in particular, may not have affected all sectors of Hong Kong's economy equally (with the result that the benefits of growth may not have been evenly distributed), a growth rate of per capita gross domestic product in real terms of 8.9 per cent a year in the four post-recession years 1976-9, and of 5.4 per cent in 1980, must have resulted in a substantial improvement in the average standard of living for the people of Hong Kong.

Public Finance

General Revenue Account

budgetary

For the purpose of estimates and budgetary control, the government's expenditure is classified into four broad categories - Annually Recurrent Personal Emoluments, Annually Recurrent Other Charges, Special Expenditure and Public Works Non-recurrent. Annually Recurrent Personal Emoluments represent recurrent expenditure on payments of salaries and allowances to public officers; all other recurrent expenditure necessarily incurred in the provision of public services is classified as Annually Recurrent Other Charges. Special Expenditure is predominantly expenditure of a capital nature such as purchases of plant, equipment and minor public works, while Public Works Non-recurrent covers the capital expenditure on all projects included in the Public Works Programme - with the exception of the expenditure on Urban Council projects, which is included in the Urban Council budget.

In the financial year 1979-80, total gross expenditure, at $13,872 million, was $1,418 million over the original estimate. It comprised $3,517 million for Annually Recurrent