A worker adjusts a promotional sign in Mong Kok. The city's Consumer Price Index (CPI) figures dropped 0.6 percentage point in June due to food price decline and lower rental payment growth rate. Antony Dickson / AFP Photo

The city's inflation level further moderated in June this year as the local consumer price index (CPI) fell 0.6 percentage point due to food price decline and slowing down of the rental payment growth, according to the Census and Statistics Department (C&SD) data released on Monday.

The CPI rose by 3.7 percent in June 2012 comparing to the same period last year, smaller than the corresponding increase (4.3 percent) in May 2012. Factoring out the effects of the government's one-off relief measures, the year-on-year increase rate of the underlying inflation in June 2012 was 4.5 percent, smaller than that in May (5.1 percent), mainly due to the smaller increases in private housing rentals.

A government spokesman said that consumer price inflation eased further in June. "While the slower increases in food prices and private housing rentals made the largest contributions to the easing of inflation, most of the other major components of the Composite CPI also saw weaker price pressures."

"Looking ahead, inflation is likely to recede further in the coming months, given the difficult external economic environment and the deceleration of import prices. The government will continue to closely monitor the inflation situation, particularly its impact on the lower-income people," the spokesman added.

Local economists echoed the government's view that the inflation level will exhibit the declining trend in the second half of 2012 due to the slowing down of imported food prices and private rental payment.

Kelvin Lau Kin-heng, an economist at Standard Chartered Bank (Hong Kong), told China daily that the local inflation level in June is broadly in-line with market expectations.

"The market has expected the CPI in Hong Kong to ease in June, mainly due to the "base effect" - as the inflation level was high in the same period a year ago," said Lau.

He foresees that the headline inflation in Hong Kong would maintain a downward trend in the second half of this year as the global food prices had stabilized recently, and the local economy's growth slowdown in Hong Kong would also help to relieve the inflationary pressure.

"The average CPI growth in the fourth quarter could be as low as 2.5 percent," said Lau, adding that he expects Hong Kong's CPI to rise 3.5 percent in 2012.

Daniel Chan Po-ming, economic and wealth management advisor at Glory Sky Global Markets agreed with Lau's view. "Hong Kong imports most of its food from the mainland, and we can see that the mainland's food price has been coming down recently."

Chan also sees the inflation pressure continuing to ease in the second half, as the global economic growth is slowing down and demand is relatively weak. He predicted that the local inflation will slow down to around 3 percent in both the third and fourth quarters.

Amongst the various CPI components - CPI (A), CPI (B) and CPI (C), the year-on-year increases in prices in June 2012 for food (excluding meals bought away from home) (7.1 percent); housing (5.8 percent); meals bought away from home (5.6 percent); clothing and footwear (3.2 percent); transport (2.8 percent); miscellaneous services (2.6 percent) and miscellaneous goods (1.6 percent).

On the other hand, year-on-year decrease in prices were recorded in June 2012 for electricity, gas and water (-18.7 percent which was largely as a result of the government's electricity charge subsidy) and durable goods (-1.6 percent). As for alcoholic drinks and tobacco, the CPI remained unchanged over a year earlier.

Contact the writers through

oswald@chinadailyhk.com.

(HK Edition 07/24/2012 page2)