Hong Kong inflation to rise as cargo flights cut, Citi warns

Hong Kong consumers will see rising prices and possibly shortages of some goods this year as airlines slash cargo flights, Citigroup Inc. warns, highlighting the costs of the city’s zero-Covid strategy.

The bank estimated that the consumer price index will rise 2.5% in 2022, up from 1.6% last year, Citi analysts including Adrienne Lui wrote in a note dated Tuesday. They added that “import price pressure will likely be entirely passed on to consumers given that Covid has battered operating margins, and a wide selection of international fresh grocery imports will probably be affected.”

The government would need to roll out policies both “to support Hong Kong as a trading hub as well as to avoid imported product shortages and sharp price increases in fresh groceries and medicine from abroad.” The catering industry would also need help given its margins would be further hit by higher prices of imported food, Citi added.

Hong Kong, a city of 7.4 million people, is heavily reliant on food imports, raising questions about a strategy for curbing the virus that demands near-total isolation. The city’s fractured supply chain means businesses are dealing with delays in deliveries of goods such as berries and yogurt and of premium seafood and cheeses.

Cathay Pacific Airways Ltd., the city’s most connected airline, has canceled hundreds of flights. The carrier is operating just 20% of pre-Covid cargo capacity, the lowest level at any time since the start of the pandemic.

Hong Kong Chief Executive Carrie Lam last week vowed to press on with the Covid-zero strategy, extending flight bans and social-distancing measures until after the Lunar New Year break. A fifth round of financial relief totaling HK$3.57 billion ($459 million) will be released for the hardest-hit industries, Lam said.

A government report Thursday will likely show inflation accelerated to 2.5% in December from a year ago, up from 1.8% in November.