Budget Speech

Inflation

39.      This year, we will face a bigger inflation threat posed by rising pressures from both domestic and imported sources. The quantitative easing, while causing more hot money to flow into Asia, also raises inflation expectations, leading to a greater inflation risk in the region.

40.      Hikes in food prices and housing rents are of particular relevance to consumer price inflation. Local food prices go up mainly because of similar rises in the international and Mainland markets. Rents of private housing rebounded since April 2009 and registered an accumulated increase of 36 per cent at the end of last year, surpassing the pre-tsunami peak by nearly five per cent. As the tenancies expire, the rental increase over the recent past will be reflected in the new tenancies, thereby pushing up consumer price inflation in the short run. The measures to stabilise the property market introduced last November have effectively curtailed speculative activities and should divert more flats back to the leasing market. This will help ease the pressure of rental rise, though the effects will take some time to come through.

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