Hong Kong won't see a severe negative impact from the record-high consumer price index (CPI) announced on the mainland yesterday, economists and credit analysts say.

Higher-priced food imports from the mainland will inevitably lift Hong Kong's consumer prices, but the immediate extent of any negative impact is yet to be seen.

The National Bureau of Statistics announced yesterday that the mainland's CPI in January rose to 7.1 percent, the highest monthly level since December 1996, when the CPI hit 7 percent.

A woman stops at a Hong Kong vegetable stand. The city will not suffer from the impact from mainland's price hikes. CNS

But, Hong Kong's inflation still remains at a reasonable level, said Jun Ma, chief China economist for Deutsche Bank.

"A moderate increase in inflation actually helps Hong Kong's economy, especially in the banking and property sectors," Ma told China Daily yesterday.

He said rising inflation encourages people to invest in the property market, which benefits the banking industry. "And that trend will be particularly obvious when the inflation tops 5 percent," he added.

Hong Kong's CPI - the average price of consumer goods - was up 3.8 percent in December year-on-year, according to the Census and Statistics Department. That was a slight increase from the 3.4 percent year-on-year growth in November.

Kimeng Tan, associate director of sovereign and international public finance ratings at Standard & Poor's, doesn't think the mainland's high CPI will harm Hong Kong's economy.

"The 7.1 percent upsurge on the mainland sounds very alarming; the food shortage from the snowstorm makes it all worse. However, it will not hurt Hong Kong," Tan said.

He said the higher food costs account for a larger share of domestic earnings on the mainland rather than in Hong Kong.

"Especially for those rural families," Tan said, "food is considered a big part of their living costs."

The National Bureau of Statistics said that mainland food prices surged and average of 18.2 percent in January. Grain prices were up 5.7 percent and cooking oil soared 37.1 percent. Pork prices, which were cited as the major factor driving up the CPI in the second half of last year, soared 58.8 percent in January, bureau statistics said.

Peter Wong, executive director of HSBC, also believes that the higher-than-expected CPI on the mainland last month is largely due to the severe snowstorm.

Therefore, he said, how the central government reacts - perhaps by unleashing stronger monetary tightening - remains to be seen.

"It will take one or two months for the snowstorm effect to wear off, then we will have a clearer picture of where the CPI is moving," Wong said. He said there is a possibility that the central government will roll out more economic cooling measures, but he added that further interest-rate hikes may do more harm than good.

"Further hikes will only broaden the gap between the mainland interest rate and the US interest rate - which is on a downward trend," Wong said. This, he said, will add pressure for the yuan to appreciate, creating hardship for many mainland companies. He believes that increasing the required deposit reserve ratio may be most appropriate.

(HK Edition 02/20/2008 page2)