Despite the backlash from recent mainland snowstorms shooting up consumer prices, the increase in Hong Kong's consumer price index (CPI) for January may be announced at less than 3 percent today.

People walk past a ParknShop store in Aberdeen. The government is scheduled to release consumer price index for January today. Zhang Ting

That prediction came yesterday from Standard Chartered Bank (SCB), which pegged the increase at 2.9 percent.

The government will announce the official increase. December's increase was 3.4 percent.

SCB Economist Kelvin Lau expects Hong Kong's inflationary figure to be less than it was in December. The reason, he said, is partially because of the government's decision to slash taxes on property-value reassessments in the first quarter of this year.

However, he said the significant increase in food prices will remain a driving force behind Hong Kong's CPI.

Raymond So, an associate professor of finance at the Chinese University of Hong Kong, predicted that Hong Kong's CPI won't drop any time soon.

"I expect inflation to stay at a relatively high level in the coming months," he said, attributing the cause to economic concerns in the United States and the appreciation of the mainland's yuan.

"I can't foresee when the inflation pressure will ease because the US economy is still clouded with uncertainties, and the renminbi's value will continue to climb," So said.

SCB's Lau said the mainland snowstorms fueled the already-high food prices by damaging crops and blocking roads and rails.

"The impact of the snowstorm will likely be temporary," Lau said. "But despite that, the overall inflation problem will remain at the top of the central government's agenda."

The mainland recorded an 11-year monthly high for consumer prices in January. The price index surged 7.1 percent, with the bulk of the increase coming from food products.

As the impact of the severe storms begins to wear off, Lau expects the mainland's CPI will ease to about 6.5 percent this year.

With inflation remaining high, Lau said the central government will continue to roll out cooling measures to tackle the overheating economy.

"We are expecting to see four more rate hikes on the mainland this year," Lau said.

By the end of this year, SCB expects the short-term interest rate to reach 8.37 percent from the current 7.47 percent.

However, with slowdowns in the US economy prompting the US Federal Reserve to cut interest rates successively, the disparity between the two markets' interest rates is bound to broaden - attracting more money to be invested in mainland businesses.

Still, Lau said this is not the main concern, as global investment sentiments have been dampened due to the US economic woes.

Rising yuan hurts exports

The yuan could see another bullish year as the US dollar continues to weaken. "We expect the yuan to jump 9 percent in value this year," Lau said.

The appreciating yuan and the weakening domestic demand in the US will mean another hard year ahead for Asian exporters, especially in the electronics sector.

"Falling prices and inventory correction are the reasons behind the hardship that this sector may see under the current economic conditions," Lau said.

The economist expects the mainland's export growth for 2008 to be 6.8 percent over 2007, a sharp drop from the 27 percent growth a year earlier.

"The weak US export figure drags down the mainland's growth in this area," Lau said.

(HK Edition 02/22/2008 page2)