Inflation concern overshadows 6.8% economic growth in 2010

Rising inflation looms as a major issue to tackle in 2011, said Financial Secretary John Tsang.

According to Hong Kong Information Services Department, for 2011, the Financial Secretary forecast inflation of 4.5% with GDP growth of 4-5%.

For the medium term, annual average growth is estimated at 4% in real terms for the period 2012-15, with underlying inflation averaging 3.5%.

“The risk of rising inflation is mounting in Asia,” he said.

“The soft US dollar and possible sustained increase in global food and commodity prices will put more inflationary pressure on Hong Kong.

“On top of these, the continued rise in the Mainland’s food prices and local rentals are expected to have a more noticeable effect on our inflation this year.”

Fighting inflation, asset bubbles

He said in the short term, the Government will strive to ease domestically generated price pressure by forestalling property market exuberance, preventing excessive credit growth and pursuing a prudent fiscal stance.

Efforts will also be made to diversify the sources of food imports.

Mr Tsang unveiled plans to issue up to $10 billion worth of inflation-linked retail bonds, or iBond, to provide Hong Kong residents with an investment option for coping with inflation while promoting the development of the local retail bond market.

“Our preliminary plan is to issue iBond with a maturity of three years to Hong Kong residents,” he said, adding interest will be paid to bond holders every six months at a rate linked to the inflation of the last half-year period.

The Financial Secretary also announced $18.4 billion worth of one-off relief measures to help combat the impact of inflation and rising prices on people’s livelihood.

He said another challenge for Hong Kong in 2011 will be the risk of asset-price bubbles, and the most effective solution to the property-market problems was ensuring steady and adequate land supply.

He announced new measures to increase land supply that will see specifying in the Application List four residential sites initiated for sale by the government in 2011, and a further five sites added to the list specifically for the construction of small and medium-sized flats.

Mr Tsang said the Government will also explore new ways to increase land supply, such as reclamation outside Victoria Harbour and rock cavern development.