Stronger yuan to bring Hong Kong higher food prices

Get ready for rising food and petrol prices, and the number of mainland tourists, as the effects of the yuan hitting a 19-year high spills over into Hong Kong.

Inflationary risks are ballooning in the city, with the yuan peaking at 6.2371 per US dollar this week plus an influx of so-called hot money - capital attributed to the third round of quantitative easing in the US, monetary policy widely seen as a euphemism for printing money.

Amid signs that mainland China's economy is regaining momentum, QE3 has given US banks the cash to spend in Hong Kong, with its access to yuan-denominated investments.

All this has left the greenback weaker and the yuan stronger, placing the Hong Kong dollar - pegged firmly to the US currency - in an inflationary squeeze.

The repercussions are spreading across a city that relies heavily on mainland imports from flour to pork and clothes to fuel. It's good news for retailers who rely heavily on mainland shoppers but bad news for the rest of the city.

Not that shoppers may notice at first. Some retailers said yesterday they plan to try to preserve profitability, while refraining from raising prices by shrinking package size - but there were still warnings that could only last so long until costs burst at the seams and prices have nowhere to go but up.