Figures released in the southern Chinese territory Monday showed inflation hit 7.9 percent year-on-year in July, the highest level since November 1995, when it stood at 8.4 percent.

The hike, up from 5.6 percent in June, was driven largely by rises in rent and food prices as well as fees for overseas package tours thanks to the weakening US dollar, to which the HK dollar is pegged, the Census and Statistics Department said in a statement.

BWC Capital Markets Chief Economist Daniel Chan told AFP he expects inflation to continue to worsen, rising easily above six percent in the next few months on account of rental prices, food costs and the HK-US dollar peg.

"Inflation will continue to rise in Hong Kong and the situation will worsen," he said Tuesday. "In the past months, property prices have risen significantly, which has bumped up the price of housing rentals. This and soaring food costs will keep inflation at high levels."

Consumers should "brace themselves" as the city is "likely to see more price hikes in the coming months", he added.

Likewise, a government spokesman said in a press statement: "Inflation is likely to remain notable in the near term, on the back of still-elevated global food prices as well as higher domestic cost pressures.

"The government will continue to monitor the movements of global food and commodity prices, and remain vigilant about the local inflation situation, particularly its impact on the lower-income people," he added.

Copyright AFP (Agence France-Presse), 2011