2011 Hong Kong annual inflation forecast at 4%

Food price inflation may rise to 7% in 1Q11 should inflaton in China worsen.

DBS said that the food prce inflation amounted to 5.7% in Oct10, up from 1.7% in Mar10.

Moreover, private office rentals have increased by 13% YoY in 3Q10. On top of the high rental inflation, the newly imposed minimum wage will further erode profit margins. According to the Report of the Provisional Minimum Wage Commission, "the general view from various stakeholders was that enterprises would not absorb more than 50% of the additional wage bills by profit reduction", meaning cost passing higher costs to consumers is inevitable.

Furthermore, nominal wage increase for 2011 will be at most 3% according to surveys. While, the composite CPI is projected to go up to 3.5% YoY in 1Q11 from 2.8% in 4Q10 and annual inflation is projected to advance 4% in 2011.