Food, rents drive up HK inflation

HONG Kong's inflation accelerated at the fastest pace in more than nine years as food from the Chinese mainland became more expensive and lower borrowing costs drove up property prices and rents.

Consumer prices jumped 3.8 percent in December from a year earlier, the region's government said yesterday on its Website, after climbing 3.4 percent in November. That was the most since June 1998 and beat the 3.6 percent median estimate of 12 economists surveyed by Bloomberg News.

Hong Kong is paying more for the food that it imports from the mainland because of a surge in inflation on the mainland and a strengthening yuan. Rents are rising after four interest-rate cuts by banks last year boosted real-estate investment. Borrowing costs track United States changes because the city's currency is pegged to the dollar.

"Hong Kong's inflation is mainly being pushed up by the property market," said Henry Li, an economist at Core Pacific-Yamaichi International Ltd in Hong Kong. "Rising food prices in China's mainland are also fueling increases."

Food prices jumped 6.9 percent in December from a year earlier and utility costs increased 5.1 percent, the government said. Rents climbed 4.3 percent.

For all of 2007, Hong Kong's consumer prices climbed two percent from a year earlier, the statement said. That matched the government's estimate in November.

The mainland's inflation accelerated to 6.9 percent in November, the highest level in almost 11 years, on a shortage of pigs and increased prices for vegetables and grains. Wholesale prices of agricultural products jumped 14.1 percent.

Adding to the import bill, Hong Kong's dollar has fallen about seven percent against the yuan in the past year.

Ng Fung Hong Ltd, the sole supplier of fresh beef to Hong Kong from the mainland, increased wholesale prices by 15 percent last week.

CLP Holdings Ltd and Hongkong Electric Holdings Ltd, Hong Kong's two electricity companies, increased prices by 4.5 percent and six percent respectively from January 1 on fuel costs.

Residential rents rose 13 percent in 2007 from a year earlier, according to Knight Frank, a property company. Luxury apartment rents jumped 27 percent.