Inflation may still “reaccelerate”: OCBC

The bank maintained its inflation forecast at 1.6% to 1.8% in 2021.

March inflation eased to 0.5% when compared to the 1.1% average in January and February, but OCBC Bank says this will likely “reaccelerate” due to the the fact that prices are coming off an historically low base.

“We expect inflation to reaccelerate amid the low base effect,” the OCBC Treasury Research said in its daily outlook.

The rise in consumer prices rose slightly, compared to the 0.3% recorded in March 2020, according to the Census and Statistics Department. The agency reported year-on-year increases were seen in the prices of electricity, gas and water (21.2%), food (1.6%) alcoholic drinks and tobacco (0.5%) and miscellaneous services (0.4%).

Food inflation reached 1.6% as food prices increased, on top of higher costs of eating out; which the OCBC said was “not enough” to offset the -0.5% YoY decline in the housing price index for the second consecutive month.

Decreases were recorded in (-2.3%), durable goods (-1.2%), miscellaneous goods (-0.7%) and housing (-0.5%); whilst clothing and footwear were unchanged.

Read also: Inflation rate speeds up slightly to 0.5% in March

The bank added the gradual economic recovery, resulting from the rollout of vaccines could lead to inflationary pressure, in light of supply chain bottleneck as well as monetary and fiscal stimulus extended across the globe.

“Still, amid sluggish labor market and ongoing border controls, overall price pressures may be contained and therefore we keep our 2021 inflation forecast unchanged at 1.6%-1.8%.”

Job situation in Hong Kong has improved as the unemployment rate in March dropped slightly to 6.8% after peaking 7.2% in February.

Read also: Jobless rate fell to 6.8% in March, as fourth wave receded

In a separate analysis, the OCBC said the jobless rate will likely sustain the downward trend in the unemployment rate.

Read also: Worst is over? Hong Kong's jobless rate drops from 7.2% peak