Tight labour market conditions to further fuel wage inflation:HSBC

The recent unemployment rate surprised markets to the positive side in February.

According to HSBC, although Hong Kong's unemployment rate is now sitting well below its long-term trend of 4.2% (1990-2010), the private sector is still showing signs of solid improvement, with the latest HSBC PMI sub-index for employment hitting a 38-month high in February.

Moreover, the continued tightness of productive capacity (backlogs of work built up for the seventh straight month in February's PMI) suggests that businesses likely remain upbeat.

For now, the tightness of labour market conditions and wage increases continues to underscore our buoyant outlook for consumer spending and GDP growth (+5.2%) and for wage inflation to continue stoking inflationary pressures for headline CPI to average at least 4.4% this year.

Strong local and foreign demand are keeping businesses hiring, tightening labour market conditions to further fuel wage inflation. HSBC expects CPI inflation to continue edging up for the rest of this year before peaking out in Q3 or Q4, averaging 4.4% in 2011.