Hong Kong's CPI is expected to have rising 3.0% year on year in December 2010. Expectations are that year on year CPI increases will increase further are now widespread. At least one economist has stated that CPI could reach 5% this year.
Leaving aside the issue of whether CPI is an accurate proxy for either inflation or cost of living, it does not take much investigation to understand where the increased CPI numbers come from. Food prices, airfares, entertainment, rents and school fees have all gone up noticeably over the last year. Utilities have gone up, but not by as much. Management fees and a number of other items have also risen, but in some cases the increase is from levels last set more than a year ago. I can't think of anything that has gone down.
Bank deposits still yield close to zero. Mortgage interest rates are still below 1%. You have to go a long way out in terms of maturity to beat inflation on HKD bonds (or sacrifice credit quality). It's not hard to see that it pays to be a borrower and not a lender in this environment.
Longer term, if I have to raise the expected inflation rate used in my retirement plan I must either (i) delay retirement so that I can accumulate a bigger pool of assets or (ii) raise the nominal expected rate of return on my investments. The former would be disappointing and the latter is only partly within my control. While I need to do some more research, my understanding is that in the short run rising inflation can be negative for companies although in the longer run they tend to survive inflation better than bonds. In both time frames, other factors can outweigh the inflation effect.