LCQ18: Government remains vigilant on inflation situation

     Following is a written reply by the Financial Secretary, Mr John C Tsang, to a question by Hon Frederick Fung in the Legislative Council today (May 4):


     According to the latest statistics released by the National Bureau of Statistics of China (NBSC), consumer prices on the Mainland in March this year rose by 5.4% year-on-year, which is a record high in 32 months and even exceeds the 4% price control target set by the Central Government.  Among the consumer items, food prices have surged the most, by 11.7%.  It has been reported that when responding to the questions raised by Hong Kong reporters, a spokesman of NBSC said that the rise in the prices of commodities on the Mainland, such as agricultural products and daily necessities, would certainly have some impact on Hong Kong.  Some Hong Kong economists have even anticipated that inflation on the Mainland may push up this yearˇ¦s inflation rate in Hong Kong to 6%.  Moreover, as the exchange rate of Renminbi against the US Dollars has hit new high several times recently, imported inflation in Hong Kong has accelerated significantly and prices of imported food in Hong Kong have been escalating, for example, the price of cooking oil increased by nearly 40% in the past four months.  The costs of clothing, food, accommodation and transport are generally on the rise, for example, bus and railway fares have increased recently.  In this connection, will the Government inform this Council:

(a) whether it has assessed the impact of the latest situation of inflation in the Mainland and the increase in various living expenses on the local economy and community, including the impact of the surge in food prices, etc. on the livelihood of the middle and lower classes; if it has, of the results; moreover, whether it will adjust upward the inflation forecast for this year; and

(b) given that the authorities are planning to introduce a number of measures to assist the public in coping with inflation (including issuing iBond, granting subsidy on electricity charges, paying two months' rent for public housing tenants, increasing the funding for food banks, and providing a one-off sum of $6,000 to each Hong Kong permanent resident aged 18 or above), of the timetable for implementing those measures; whether they will be implemented as expeditiously as possible in response to the recent trend of accelerated inflation; whether it has drawn up further measures to cope with possible aggravation of the inflation problem in the future; if it has, of the measures; if not, the reasons for that?



(a) Consumer price inflation in the Mainland rose to 5.0% year-on-year in the first quarter of 2011.  The major driving force was the increase in food prices which was 11.0% year-on-year in the first quarter.  

     The Government is highly concerned about the impact of inflation on our citizens.  By reference to the newly-announced 2009/10-based series, the Consumer Price Index (A) (CPI(A)) rose by 4.1% year-on-year in the first quarter of this year, indicating that the upward pressure on the living cost of the lower and middle classes has indeed increased.

     The year-on-year increase of the basic foodstuff component of the CPI(A) (i.e. food (excluding meals bought away from home)) was 6.8% in the first quarter of this year.  Among the sub-categories under this component, prices of edible oils climbed by 6.9% over a four-month period from November 2010 to March 2011.  In addition, the year-on-year increases in prices of a few other components in the first quarter were 4.1% for "meals bought away from home", 4.2% "housing", 9.1% "electricity, gas and water", 4.0% "clothing and footwear" and 2.0% "transport".  On the other hand, prices for "durable goods" declined by 5.0% year on year in the first quarter.

     The Government would remain vigilant on the inflation situation, particularly its impact on the low-income citizens.  The Government regularly conducts reviews and updates its economic forecasts, including the inflation forecast for 2011.  The results of the next round of review and update will be announced on May 13.

(b) When preparing the 2011-12 Budget, we have anticipated the accelerating trend in inflation this year and have proposed a series of measures in the Budget to help ease the pressure of inflation on our citizens.  Apart from leaving wealth with the people, our adjustments to the Budget will also help ease our citizens' burden by increasing their disposable money.

     On the revenue side, the rates waiver for 2011-12 has already been implemented.  The Government will introduce an amendment bill into the Legislative Council today (May 4) to implement the proposals to reduce salaries tax and tax under personal assessment for 2010-11, and to increase the parent/grandparent allowance, the child allowance, and the deduction ceiling for elderly residential care expenses for salaries tax and tax under personal assessment.

     On the expenditure side, relevant bureaux will consult Panels concerned in accordance with established procedures.  On April 4, the Transport and Housing Bureau consulted the Panel on Housing on the proposal to pay two months' rent for public housing tenants, and received its support.  As for the proposals to provide electricity charges subsidy and to provide extra allowances to Comprehensive Social Security Assistance, Old Age Allowance and Disability Allowance recipients, the Financial Services and the Treasury Bureau (FSTB) and the Labour and Welfare Bureau will respectively consult the Panel on Financial Affairs on May 5 and the Panel on Welfare Services on May 9.  Subject to the views of the relevant Panels, bureaux concerned plan to seek funding approval from the Finance Committee (FC) in June.  If the funding approval is obtained, it is expected that the electricity charges subsidy will be credited starting from July 1 and the rent payment proposal will be implemented in August and September. The Social Welfare Department (SWD) will also arrange payment of extra allowances in the second half of this year.

     FSTB is formulating the details of the proposal to give a sum of $6,000 each to Hong Kong permanent identity card holders aged 18 or above.  When the details are finalised, it will present the proposal to the Panel on Financial Affairs for discussion, and then seek funding approval from the FC.  Once the funding approval is obtained, we will immediately take forward the proposal so that the registration will start as soon as possible.

     In addition, although the funding allocated to short-term food assistance service projects should be sufficient for financing the operation of the services until 2013, SWD will closely monitor service demand and, where necessary, seek FC's approval for injecting the $100 million earmarked for the continuation of the services.

     The Government also plans to initiate the retail part of the Government Bond Programme through the launch of the inflation-linked retail bond (iBond).  The issuance of iBond would help enhance retail investorsˇ¦ awareness and interest in bond investment, thereby achieving the objective of promoting the development of the retail bond market in Hong Kong.  It would also provide investors with another investment option for maintaining their purchasing power against the backdrop of low interest rate and rising inflation.  The Administration is formulating the implementation details and the sales arrangements for the iBond with a view to launching it as soon as possible.

     We have taken into account this year's inflation when drawing up the above measures.  The Government will continue to closely monitor the inflation movement and introduce measures, where appropriate, in the light of prevailing circumstances to ease the impact of inflation on people's livelihood.

Ends/Wednesday, May 4, 2011
Issued at HKT 12:01