HONG KONG: Inflation in the city is easing and this is amply reflected by the moderate 1.2 percent rise in the consumer price index (CPI) last month, government data show.

An analyst and a government spokesman both predicted yesterday inflationary pressures to ease further in the coming months as Hong Kong's economy continues to feel the adverse impact of global recesion.

Billy Mak, associate professor of finance and decision sciences at Hong Kong Baptist University, described as "reasonable" underlying inflation in March.

He noted, however, last month's CPI should have recorded a drop instead of an increase amid a continued rise in unemployment, resulting in reduced consumer spending.

Meanwhile, a government spokesman said consumer price inflation came down further in March from February and January as it reflected "the recent easing of private housing rentals and food prices, as well as weaker demand conditions."

He also noted that various one-off government relief measures, notably subsidy on power consumption, helped ease the rise in CPI.

If government subsidies on public services and utility chargers were to be excluded, the underlying inflation rate in March would have come in at 2.6 percent, significantly lower than the average 3.3 percent in January and February, the Census and Statistics Department said yesterday.

The spokesman said inflationary pressures are likely to recede further looking ahead, in the face of the global economic downturn.

On a seasonally adjusted basis, the average monthly rate of composite CPI for the three-month period ended March was virtually stagnant, while the corresponding rate from December 2008 to February 2009 dropped 0.2 percent.

Alcoholic drinks and tobacco recorded the steepest year-on-year price rise in March, jumping 22.2 percent, followed by housing and food, which rose 5.7 percent and 5.4 percent, respectively.

However, significant falls were recorded in the price movements of various items. Electricity, gas and water recorded a year-on-year decline of 42.9 percent, thanks to the government's temporary waivers on the payment of quarterly property taxes and its extra subsidies on utilities charges last year.

Durable goods and miscellaneous services, meanwhile, also showed a 2.5 percent drop last month.

In the first quarter of the year, composite CPI rose by 1.7 percent over a year earlier, while the corresponding increases, after netting out the government's one-off relief measures, amounted to 3.1 percent.

Baptist University's Mak said Hong Kong's CPI in the coming months will be affected by several factors.

These include the exchange rate of the yuan against major currencies, the inflation situation on the mainland and the movement of prices of goods which the city imports from China and the rest of the world.

(HK Edition 04/24/2009 page3)