Beat­ing in­fla­tion? HK peo­ple are well-versed

China Daily (Hong Kong) - - BUSINESS | HK -

You may have to se­ri­ously keep your fu­ture eco­nomic and fi­nan­cial plans in check — in­fla­tion may re­turn to haunt us in 2017 and beyond.

It used to be one of the most dreaded words in eco­nomic par­lance. But, in the past decade, Ja­pan, for in­stance, has been try­ing, un­suc­cess­fully, to bring back in­fla­tion as the panacea for its stag­nant econ­omy.

In the past few months, the US Fed­eral Re­serve had been putting an in­ter­e­strate hike on hold, await­ing stronger signs of ris­ing wages and con­sumer prices. But now, a ro­bust eco­nomic per­for­mance, in­creased con­sumer spend­ing and higher oil prices are work­ing hand in glove to make in­fla­tion very much a re­al­ity.

An­other key fac­tor that could boost in­fla­tion stems from US Pres­i­dent-elect Don­ald Trump’s eco­nomic poli­cies which, among other things, call for higher spend­ing on in­fra­struc­ture de­vel­op­ment to stim­u­late eco­nomic growth. Such an ex­pan­sive fis­cal pol­icy, ac­com­pa­nied by Trump’s pledge to cut taxes, would al­most cer­tainly lead to a widen­ing bud­get deficit which, in turn, would push up prices.

Soar­ing in­fla­tion — the bane of many de­vel­oped economies, in­clud­ing Hong Kong, in the eight­ies and early nineties — was licked by glob­al­iza­tion. The flood of in­ex­pen­sive im­ports in­volv­ing a vast va­ri­ety of mer­chan­dise from emerg­ing mar­kets has helped sta­bi­lize prices in the de­vel­oped economies.

In­creased do­mes­tic de­mand could be met by im­ports rather than boost­ing pro­duc­tion that would lead to ris­ing wages. In the US, for in­stance, work­ers’ av­er­age wages have re­mained static for years.

Hong Kong could be hit by im­ported in­fla­tion from the US through the cur­rency peg, as well as the ris­ing tide of trade pro­tec­tion­ism in the US and, possibly, Europe. Ex­ports growth has slowed for many months, while fi­nan­cial ser­vices’ con­tri­bu­tions to the econ­omy have con­tracted.

A re­cent study showed that most Hong Kong em­ploy­ers sur­veyed would freeze hir­ing staff next year. Some of the ma­jor banks were re­ported to have trimmed their pro­fes­sional staff head­count to bring down costs.

In­vestors may have for­got­ten how to grow wealth in an in­fla­tion­ary en­vi­ron­ment marked by surg­ing in­ter­est rates and com­mod­ity prices. To many Hong Kong peo­ple, though, buy­ing prop­erty re­mains the safest way to deal with in­fla­tion.

PRO­VIDED TO CHINA DAILY

In the wake of the lat­est US in­ter­est rate­hike, Hong Kong could be hit by im­ported in­fla­tion from the US next year through the cur­rency peg.

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