Headline inflation expected to ease in 2016

December underlying inflation still unchanged.

In Hong Kong, it is expected that headline inflation will ease to 2.6% yoy in 2016 from 3.0% yoy in 2015 on softer domestic and external cost pressures.

According to a research note from BofA Merrill Lynch Global Research, further, lower commodity prices and subdued global growth outlook will likely keep import price inflation capped.

In addition, weak growth momentum in the Hong Kong economy, adjustments in home prices and softening labor market conditions should help contain upward pressures on domestic inflation.

Here's more from BofA Merrill Lynch Global Research:

Headline CPI inflation ticked up to 2.5% yoy in Dec, slightly above the Nov reading and market consensus of 2.4% yoy. This brings the full year headline inflation for 2015 to 3.0% yoy, in line with our expectation.

Meanwhile, underlying inflation, which nets out the effects of the government's one-off relief measures, stayed unchanged at 2.4% yoy in Dec from Nov.

The sequential momentum in the underlying inflation also remained muted as the 3m average increase in CPI inflation flat-lined at 0.3% sa mom in Dec.