HK 1Q16 Inflation Edges Up 2.8%
The government said the price pressures remained moderate, with underlying consumer price inflation edging up to 2.8% in the first quarter (last quarter: 2.2%), mainly due to the surge in basic food prices amid bad weather conditions. Given subdued global inflation, and barring significant fluctuations in food and other commodity prices, import prices will likely stay soft. The further retreat in rental inflation amid the property market consolidation, coupled with the slow pace of economic expansion, should keep local cost pressures in check. The forecast rates of underlying and headline consumer price inflation for 2016 as a whole put out in the Budget round, at 2% and 2.3% respectively, are therefore maintained in the current round of review.

Looking ahead, global economic growth is likely to remain modest in the near term, with risks still tilted towards the downside. Heightened geopolitical tensions and the uncertainty about the potential exit of the UK from the EU have also posed additional challenges. While the global stock markets have rebounded somewhat in the recent months, the situation remains choppy, and the uncertainties associated with the US interest rate normalisation and increasing policy divergence among major central banks could add financial volatility again, posing a threat to the global economy.

On the other hand, the US economy is expected to show slightly faster growth in the coming quarters. Recent activity indicators suggested that the mainland China economy continued to grow solidly. In short, the trading environment for Hong Kong's exports, as well as those of other Asian economies, will remain rather difficult in the coming months. Yet, if the economic conditions in Hong Kong major export markets show improvements going forward, the downward pressures on Hong Kong's exports will hopefully lessen in the latter part of the year. As to Hong Kong's exports of services, the weakness in inbound tourism will continue to pose a drag in the near term, though the pace of decline in visitor arrivals has narrowed somewhat more recently