HONG KONG: The prices of consumer goods in the city fell for the first time in four years in June as the economic recession reduced demand, but economists view the drop as a correction after the sharp rises in 2008.

The government announced yesterday that the consumer price index (CPI) in June fell 0.9 percent from a year earlier after staying unchanged in May.

Government subsidies to help reduce public-housing rents and electricity bills, temporary waivers on quarterly property tax and discounts offered by retailers in the city, all helped to drag the index lower.

Pedestrians cross a street festooned with various signs of retail shops and other services in Hong Kong yesterday. The city's consumer price index fell for the first time in four years in June, according to figures released by the Census and Statistics Department. AFP

"We expect inflation to hover around zero for the next 12 months. Overall demand remains very weak and there is not much to drive it up, on the other hand, government stimulus measures have flooded the market so that will help stop demand falling further," said Irina Fan, a senior economist at Hang Seng Bank.

"Stimulus is helping asset prices go up. If property rents then start to rise it will affect consumer prices and if the stock market rebound leads to a rise in consumer spending and economic activity, that would also boost consumer prices. However, it is too soon to tell."

The Census and Statistics Department said on its Web site yesterday, on a seasonally adjusted basis, the average monthly rate of change in the Composite CPI for the three-month period from April to June 2009 was minus 0.1 percent. For the first half of 2009, the Composite CPI rose by 0.8 percent over a year earlier.

Among the various CPI components, there were large year-on-year declines in prices in June for electricity, gas and water, which dropped 42.5 percent, largely as a result of the SAR government's electricity charge subsidy.Durable goods and food, excluding meals bought away from home, recorded a 0.8 percent drop in prices last month.

Falling prices may encourage Hong Kong consumers to spend, and help revive an economy that shrank in each quarter for the 12 months through March 31. Government economist Helen Chan said that any deflation would probably be "short-lived and shallow" compared with the 68-month run of falling prices that started in 1998.

The government has allocated HK$87.6 billion ($11.3 billion), or about 5.2 percent of gross domestic product, to stimulus and relief spending since 2008. The city probably returned to growth in the second quarter of this year as export declines moderated, Financial Secretary John Tsang said July 6.

The Hong Kong economy shrank a seasonally adjusted 4.3 percent in the first quarter from the previous three months, the biggest of four straight contractions. The decline was 7.8 percent from a year earlier.

(HK Edition 07/22/2009 page4)