Why has Hong Kong\'s historical inflation been so high? I\'m doing a project for

Question

Why has Hong Kong's historical inflation been so high?

I'm doing a project for school where I'm required to compare historical inflation rates of developed markets. When i pulled Hong Kong's historical inflation, I noticed that inflation was as high as 10-16% between 1981 and 1992. ( http://www.tradingeconomics.com/hong-kong/inflation-cpi i also pulled the numbers off a Bloomberg Terminal)

For a developed market thats in the top 10 for market cap size, why so high? Solid economies tend to stick between 1-3% so im curious what influenced these inflation rates.

Explanation / Answer

Inflation was high because most of investment was financed from external sources, there was less of an association between fiscal deficits and inflation. However, as the access to foreign capital was reduced at the time of the debt crisis in the early eighties, the countries with high deficits resorted to money creation as the mode of financing. The money stock expanded. First, hong kong's ability to raise fiscal deficits was limited by the rules of that monetary arrangement. Second, there was a fixed ratio of reserves prescribed for money stock that limited the extent of credit expansion.Which led to high inflation but didn't effected the manufacturing sector of the Hong Kong

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