Credit Suisse: Mainland China's Inflation Problem Just Infected Hong Kong

Inflation in mainland China is now clearly spilling over into Hong Kong.

The special administrative region’s prices just jumped by the most in more than two years, driven by the same food price inflation rocking the mainland and shocking the consensus of analysts:

Christiaan Tuntono @ Credit Suisse:


Headline CPI rose 2.6% YoY in October, above consensus, with the underlying CPI up 0.5% mum, which is the fastest pace in over two years. Netting out the effect of various government one-off measures, the underlying CPI inflation rate was at 2.3% YoY, versus 2.2% YoY in September. The mum increase has accelerated to 0.5%, stepping up from 0.2% mum in September and around 0.1% mum in the previous four months, driven by the rise in food prices and rents.

Food prices rose 0.41% from September, reflecting the pass- through of China food inflation into Hong Kong. Prices for raw food items rose 0.8% mum, in line with the rapid increase in China’s food inflation in recent months. The pace of increase has moderated from the 1.9% mum seen in September, but we still expect China food prices to trend up under a still excessive liquidity environment. A stronger RMB vis-a-vis the HKD, and rising number of Chinese residents coming to Hong Kong to purchase daily grocery goods, will aggravate the price pressure too. Prices for meals away from home (restaurant services) rose 0.3% mum in October. We expect it to pick up further in 2011, as the pressure from minimum wages, higher commercial rents, and rising raw food prices get passed-through to the final consumers.

Rental rates rose for the 11th month in a row as well, by 0.24% month-on-month. Expect the Chinese government to blame the U.S. in Bernanke while conveniently ignoring the fact that they have voluntarily pegged their currencies to the U.S. dollar, and voluntarily expanded their money supply on the mainland at a far more dramatic pace than even the U.S..

(Via Credit Suisse, Hong Kong Economics, Christiaan Tuntono, 23 November 2010)

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