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Following is a question by the Hon Emily Lau and a written reply by the Financial Secretary, Mr John C Tsang, in the Legislative Council today (October 31):
Question:
Regarding the problem of inflation, will the Executive Authorities inform this Council:
(a) given that the imported foodstuffs of Hong Kong mainly come from the Mainland and, in recent months, both the exchange rate of Renminbi ("RMB") against the Hong Kong dollar ("HKD") and the inflation rate on the Mainland have shown an upward trend, of the authorities' measures to alleviate the problem of imported inflation;
(b) given that HKD is pegged to the US dollar ("USD"), of the authorities' measures to curb the rise in local inflation rate led by the recent weakening of HKD along with USD; and
(c) given the Employers' Federation of Hong Kong had proposed to employers early this month that pay rises given to their employees next year should not exceed 2.5%, which is lower than the projected inflation rates of 3% to 4%, and that the pay rises given to the junior level employees are generally lower than those given to the middle and senior level employees, of the authorities' measures to ease the economic pressure brought by inflation on employees at the junior level?
Answer:
Madam President,
(a) The Renminbi ("RMB") appreciated against the Hong Kong dollar by 5.5% year-on-year in the first eight months of the year, and food prices in the Mainland also went up continuously amidst food inflation worldwide. Over the period, however, the rate of increase in the import price of goods from the Mainland was lower than the rate of currency appreciation. Import price of foodstuffs from the Mainland was up by 3.9% and that of consumer goods by 3.5%. In other words, the increases in the prices of goods imported from the Mainland were lower than the extent of RMB appreciation because of competition among the suppliers of imported goods.
Because imported inflation is driven mainly by external factors like exchange rates, world inflation and oil prices, there are few measures at the disposal of the Government to influence the movements of import prices. Nevertheless, the Government will continue to maintain the free trade policy and ensure a highly competitive business environment, to allow for more choices for consumers. The competition among suppliers should also enable consumers to enjoy reasonable prices.
The principal concern about imported inflation lies in (1) whether it will push up overall inflation significantly, thereby lowering the purchasing power of household income and hence exerting burden on people's livelihood; and (2) from a macro point of view, a sharp rise in inflation would hurt competitiveness and impede sustainable economic development. On the first concern, the Government has put forward a number of fiscal measures since early this year, which have helped relieve the burden brought about by inflationary pressures on the public. Such measures include the public housing rental waiver in February; rates concession in the second and third quarter as announced in the Financial Secretary's Budget Speech in February; the public housing rental cut since August; as well as the implementation of the Pre-Primary Education Voucher Scheme in September. The combined effect of these measures serves to lower the increase in the Composite Consumer Price Index for 2007 as a whole by about one percentage point. On top of this, the rates concession in the last quarter of the financial year 2007/08 as announced in the Policy Address would render a further relief to the burden of households and will directly pull down the Composite Consumer Price Index in 2008 by 0.3 of a percentage point.
On the second concern, the Government believes that the best way to prevent resurgence of high inflation is to expand the production capacity of the economy because maintaining sustained productivity growth is the most effective way to keep down inflation pressures. Indeed, inflation was mainly dampened by the rapid growth in productivity and has remained relatively contained, despite the sustained strong economic growth averaging at about 7% per annum over the past four years. In this regard, the Government will strive to push ahead with the infrastructure projects with a view to expanding the production capacity of the economy. In parallel, the Government will also strive to enhance the quality of education and retraining, in order to foster an on-going process of sustained productivity upgrading. The Government will also ensure adequate supply of land resources to meet with the needs for long-term economic development.
(b) Admittedly, part of the recent increase in inflation was imported, but the more important underlying factor was the continued strength in our economic upturn, leading to a return of the pricing power of retailers amidst a vibrant business, and also the increasing upward pressures on business costs. It has to be pointed out that consumer price inflation averaged at 1.5% in the first nine months of this year, and the underlying inflation at 2.5% after netting off the effect of the public housing rental waiver in February and the rates concession in the second and third quarter. By comparison, the increase in import prices was 2.1% in the first eight months of the year, actually lower than the underlying consumer price inflation. From this, it can be seen that imported inflation, though also building up, has not picked up in a significant way. We will, however, continue to keep a close watch of the situation.
(c) The Government notes the recommendation made by the Employers' Federation of Hong Kong (EFHK) earlier this month urging its member companies to keep average salary increase below 2.5% in the coming year and reward staff with one-off bonuses according to operational situation and employees' individual performance.
Conceivably, employers when making pay adjustment decisions to their staff, would take into account performance of individual staff, as well as the overall economic conditions and demand/supply situation in the labour market. Indeed, the results of EFHK's own pay trend survey indicate that the actual pay adjustments turned out to be generally higher than EFHK's recommendation in the past few years.
The continuous process of economic restructuring in Hong Kong has led to a huge increase in demand for higher-skilled and better-educated people, which in turn resulted in a generally larger increase in the salaries of middle to higher level personnel than the economy average. Yet, in tandem with the economic upturn, overall employment conditions as well as labour incomes have continued to improve over the past few years, thus benefiting employees in a wide spectrum of trades and in different segments. Taking the wage index which reflects the regular payments to employees at the supervisory level or below, as an example, there has been a steady increase since early 2005. In June 2007, labour wages increased by 2.6% in money terms over a year earlier. Employees' average payroll likewise went up, by 2.9% year-on-year in the second quarter. Both were somewhat higher than inflation, indicating that even against the backdrop of rising inflation, people were able to enjoy increase in real earnings alongside the economic recovery.
Government is certainly concerned about the well-being of the grassroots, including low-income people, needy elders and the other disadvantaged groups, and fully understands that the recent price rise has brought increased pressure to their livelihood. The Government will continue to monitor the price trend, and review in a timely manner the adequacy of its support provided to the underprivileged. We will keep our policy under review with a view to building a harmonious and caring society.
In the long run, the most effective and fundamental way to improve the conditions of the low-income group is to foster overall economic development which will in turn create new employment opportunities. Thanks to the economic recovery and sustained economic growth over the past few years, there has been a continuous decline in the number of low-income employees. This shows that alleviating poverty by promoting employment is a move in the right direction. Pushing ahead with the ten large-scale infrastructure projects will bring about many employment opportunities. We will also strengthen and integrate employment and training/retraining services to enhance the ability of the disadvantaged to achieve self-reliance and adapt to economic restructuring. Moreover, the Administration will try new modes, including vigorous motivation of a tripartite collaboration among the Government, business and society, to develop social enterprises, so as to help low-skilled workers with employment difficulties to re-enter the labour market.
Ends/Wednesday, October 31, 2007
Issued at HKT 13:49
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