ENG-2016 — Page 84

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The Economy

underlying consumer price inflation likewise eased to 2.3 per cent in 2016 from 2.5 per cent in 2015, the lowest since 2010. In terms of the quarterly profile, underlying inflation fell from 2.8 per cent in the first quarter to 2.3 per cent in the second quarter, and slightly further to 2.1 per cent in both the third and fourth quarters.

External price pressures were muted, thanks to the relatively low inflation of Hong Kong's major import sources and to some extent the persistent strength of the US dollar. Food inflation, despite a temporary surge in the first quarter under bad weather, was moderate for the year as a whole. The moderate expansion of the local economy kept rises in domestic costs at bay. Rental inflation eased further. The price-setting power of the retailers was also constrained by the slowdown in inbound tourism and slower growth in private consumption.

The GDP deflator rose 1.8 per cent in 2016, down from the 3.7 per cent increase in 2015, mainly reflecting further moderation in the domestic demand deflator and mirroring the trend in consumer price inflation (chart 14).

Chart 14

Main Inflation Indicators (year-on-year rate of change)

Per cent

8

เก

6

+

Underlying Composite CPI

2

GDP deflator

0

-2

-4

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2015 I 2016

I

2012

2013

2014

Underlying inflation eased further in 2016, as domestic price pressures remained benign and imported inflation was largely absent.

Public Finance

Management of Public Finance

The principles underlying the government's management of public finances are enshrined in the Basic Law, which stipulates that:

• The Hong Kong Special Administrative Region (HKSAR) shall have independent finances, and shall use its revenues exclusively for its own purposes.

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