Inflation is likely to slow, expects analyst

Hong Kong – Inflation base effect normalised in August Hong Kong’s all-important CPI number will be announced today. Following a heavily distorted July release (inflation accelerated to 7.9% y/y from 5.6% in June because government concessions fell in different months this year and last), we expect the base effect to have normalised in August.

We forecast August CPI inflation at 5.6% – still elevated, but considerably slower than in H1-2011. The food and housing components remain on an uptrend in y/y terms, but this should be offset by the reintroduction of the electricity tariff subsidy. Overall, the August CPI reading should be the first step towards a gradual levelling-off of y/y CPI growth towards the year-end.