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Intellasia East Asia News – Spiking inflation leading to rising costs? HK’s businesses likely to make consumers bear burden, experts say

Hong Kong businesses are set to shift the cost of looming higher electricity bills and rising inflation onto customers, which could in turn lead to weaker local consumption, industry leaders and analysts say.

The experts on Tuesday said worsening inflation would inevitably threaten the survival of small and medium-sized enterprises (SMEs) and could trigger business closures, but its overall impact on Hong Kong’s economic recovery would be limited.

Hong Kong is facing rising inflation on many fronts, as CLP Power and HK Electric announced it would increase electricity bills by 6.4 per cent and 5.5 per cent respectively next year, citing fuel price volatility caused by geopolitical tensions.

This came soon after a fare hike request from the city’s iconic Star Ferry, which asked to double adult fares to up to HK$8.40 (US$1.08) per trip in the wake of a fall in passenger numbers and income.

In July, fares on Hong Kong’s tram rose by 15.4 per cent amid a drop in ridership and shrinking revenue. Adults now pay HK$3 per ride, while taxis increased fares by up to 13.8 per cent.

Hong Kong’s overall consumer price index (CPI) a measure of changes in the cost of goods and services bought by households rose by 1.8 per cent in October year-on-year.

A month earlier, the rate was 4.4 per cent, the highest in seven years due to the low base of comparison from public housing rental waivers in September last year. For the first 10 months of this year, the overall CPI increased by 1.9 per cent year-on-year.

Last month, electricity, gas and water charges soared 13.4 per cent, while the cost of clothing and footwear increased by 4.5 per cent and food bills went up by 3.4 per cent.

David Leung Chi-wai, chair of Seafood Delight Group, which has 17 Chinese restaurants at housing estates and employs more than 1,000 workers, said he was likely to increase menu prices due to the higher electricity prices.

“We are still running at a loss. We may offset the inflation by raising menu prices by at least 3 per cent. It is inevitable for patrons to bear the cost of rising inflation,” he said.

“We have already struggled with a 10 per cent rise in operation costs this year as we needed to increase staff salaries by up to 10 per cent given the serious manpower shortage in the catering sector.”

Leung did not rule out closing some outlets should inflation continue to rise. “When approaching the end of various tenancies, we will assess the situation to see if we will continue operations in those locations,” he said.

Gary Ng Cheuk-yan, a senior economist at Natixis Corporate and Investment Bank, predicted the city’s inflation would rise to about 2.3 per cent next year. He said this could affect small businesses’ survival and weaken local consumption, dragging down the city’s economic recovery to a certain extent.

“Since utility bills and transport fees only account for a small percentage of CPI with rents and food prices taking up the majority share, the inflation rate is unlikely to be pushed to a high level,” he said.

“But rising inflation, especially the hike in electricity bills, may affect businesses’ survival as they are already struggling to stay afloat amid the pandemic. Consumers may be more cautious with their spending, thus slowing down Hong Kong’s economic recovery.”

He estimated the city’s economic growth would reach about 3.5 per cent next year.

In November, Hong Kong downgraded its full-year economic forecast from between 0.5 per cent growth and 0.5 per cent contraction to a 3.2 per cent drop amid an ongoing recession, citing a deteriorating external environment and the Covid-19 pandemic.

The city’s gross domestic product (GDP) in the third quarter fell by 4.5 per cent from a year earlier, after declining 1.3 per cent in the preceding quarter.

Danny Lau Tat-pong, honorary chair of the Hong Kong Small and Medium Enterprises Association, warned that rising inflation might increase the risks of businesses shutting down.

“The operating environment for many businesses such as restaurants, retailers, and hotels is now very bad without tourists. Many of them are suffering a loss with less than half of its pre-pandemic business,” he said. “If rising inflation continues to hit the business sector, there may be more firms choosing to close down their businesses.”

Simon Wong Ka-wo, president of the Hong Kong Federation of Restaurants and Related Trades, also said restaurants would shift the burden of rising inflation to diners to keep their business above water.

“Restaurants now at most achieve only 70 per cent of pre-Covid business levels. They can’t afford to keep losing money. Customers will need to bite the bullet and bear the rising costs,” he said.

Wong added it was unlikely that the rising inflation would lead to closures of eateries, but it would definitely dampen local consumption for a period of time.

Simon Lee Siu-po, an economist and honorary fellow at the Asia-Pacific Institute of Business at Chinese University, estimated the city’s inflation and GDP would rise to 2 to 3 per cent next year.

He assured that its impact on economic growth was very mild, as utility costs and transport fares only accounted for less than 10 per cent of CPI while food and rents took up almost 70 per cent of CPI.


Category: Hong Kong

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