Hong Kong inflation in May projected at 4.3%

There is expected easing of inflation measured by the CPI from 4.7% in April.

DBS Group Research said:

Inflation measured by the CPI in May is projected ease to 4.3% from 4.7% in April. Housing and food inflation will continue to contribute about 90% of headline inflation.

Housing rents usually lag property prices. According to Centaline Property, private rents began falling on a MoM basis only starting in Oct11 (although property prices began falling in Aug11), but picked up again since Mar12 (property prices picked up in Feb12), with April recording the largest MoM gain in 30 months (2.6%).

As it usually takes at least another few months before the behavior of rents can be captured in the housing component of the CPI, the recent fall of rents from 8.0% in February gradually to 7.3% in April is at best described as a transient phenomenon.

Food inflation, on the other hand, have stabilized and started to ease. China’s food inflation decelerated for two consecutive months to 6.4% in May from 7.0% in April and 7.5% in March. Weaker food price pressures should consequently show up in Hong Kong’s numbers (approx. 6.5% in May compared with 7.0% in April).

Broadly speaking, with food and commodity prices retreating from recent highs alongside subdued demand-pull inflation due to the economic slowdown, the inflation rate will ease in 2H12. Hence, our full-year headline inflation forecast of 4.0% (versus the government’s 3.5%) remains intact.

Meanwhile, unemployment data for May are also on tap this week. There are signs at the micro level that employers are more reserved about hiring in 2Q than in 1Q. According to the Manpower Employment Outlook Survey for 2Q12, hiring prospects weakened on both QoQ and YoY basis, with less employers expecting their company’s employment to increase compared to 1Q12.

However, as more than 80% expected no change in employment conditions, and the fact that the labor market has so far been resilient against external shocks, the unemployment rate is projected to rise to just 3.4% in May from 3.3% in April.