HK consumer price inflation slows in May on lower food and housing prices

On Tuesday, HK’s Census & Statistics Department released the consumer price index data. According to the report, HK’s overall consumer prices were up 2.6 percent year-on-year in May 2016, consistent with market consensus. May’s gain came in slightly below the 2.7 percent gain in April. Excluding the effects of all Government's one-off relief measures, the composite CPI rose 2.2 percent year-on-year in May 2016, as compared with April’s rise of 2.3 percent. This was mainly because of smaller rise in fresh vegetables’ prices.

"The moderation of headline inflation was mainly driven by lower food (3.1 percent yoy in May vs 3.8 percent yoy in April) and housing inflation (4.6 percent yoy in May vs 4.8 percent yoy in April). In particular, inflation of fresh vegetables slumped to 3.5 percent yoy in May from 20.5 percent yoy in April, as the effect of poor weather in 1Q continued to fade”, said Bank of America Merrill Lynch in a research note.

The average monthly rate of change in the composite CPI on a seasonally adjusted basis for the three month period from March to May 2016 was -0.4 percent. Meanwhile, for the three month period from February to April 2016 was nil, according to the department. Excluding the effects of all Government’s one-off relief measures, the average monthly rate of change in composite CPI for the three month period between March and May was -0.1 percent, whereas for the three month period from February to April was 0.2 percent.

A government spokesperson mentioned that the slight ease in May’s inflation pressures was partially because of the slower year-on-year rises in basic foodstuffs’ price and the private housing rental component’s price. According to the government spokesman, the upside risk to inflation is expected to remain contained in the near term. The spokesman added that the government will keep a close watch on the developments in inflation.

"Looking ahead, we expect inflationary pressure to remain muted. Sluggish growth momentum in the Hong Kong economy and potential adjustments in home prices will likely keep domestic inflation in check. Meanwhile, the still-fragile global recovery suggests external price pressures will remain subdued," added BofA Merrill Lynch.