As it states in the article, the reason for this rise in inflation is strong domestic demand. This rise in aggregate demand, which is the total demand for goods and services produced in an economy over a period of time, has caused demand pull inflation in Hong Kong, which occurs when the demand exceeds the supply in an economy. This is shown in ‘Figure 1’.
Figure 1 shows demand-pull inflation in Hong Kong where an increase in aggregate demand leads to an increase in the average price level. In the diagram, if AD1 shifts to AD2, the output and the price will change with it. The price at AD1 which is P1 will pull up to P2 after it shifts to AD2. This increase in aggregate demand will however also increase the output from Y1 to Yf. Looking at the situation, if the demand in Hong Kong further rises, it will increase the prices with it which will result in a higher inflation rate which might worsen their economy.
The writer vaguely identifies the cause of excess demand but does not talk about other causes such as cost pull inflation or inflation due to excess monetary growth that could have helped in driving inflation forward. He also states the problem of rising inflation that Hong Kong is facing, but does not put a possible solution with it. Also, he quotes what the government says is happening in the economy, but does not include the action that the government has decided to take or can take to overcome this problem. In my opinion, looking at the main problem of high aggregate demand, the government should use either one of the government policies. Fiscal policy (deflationary), the set of a government’s policies relating to its spending and taxation rates, can be used where the government can increase direct taxes that are imposed on people’s incomes. As a result of this tax, consumers will have less income, therefore they will spend less and aggregate demand will fall decreasing the inflation rate with it. Monetary policy, which is the set of official policies governing the supply of money level of interest rates in an economy, can also be used by the government where they can increase the interest rates (contractionary). This will affect borrowing as people borrow less and therefore spend less. This will result in a decrease in aggregate demand which will also reduce inflation. The author however successfully brings in different perspectives by quoting the government, economists and CPI .This helps us get different expert opinions on this matter. He also backs up the situation he talks about, with many figures and numbers that prove the validity of his article.
The author does not determine the different stakeholders that could be or are being affected by this rise in inflation. Firstly, he writes about food prices that have risen from which we know that all consumers are being affected, as well as the government that has to provide food for the poor. Secondly, the prices of private housing rents rising as we know will only affect the middle class of the country. Businesses could be affected as they might have to produce more and might raise their prices because of the high aggregate demand. The suppliers have to produce more because of the high demand.
In conclusion, the article precisely presents the problems but does not consider the implications of or offer solutions.