HONG KONG: The city's consumer prices fell by the most in five years in August as elevated unemployment discouraged spending.

Prices slid 1.6 percent from a year earlier, the government said yesterday on its website. The fall followed a decline of 1.5 percent in July - more than triple the median estimate of 11 economists surveyed by Bloomberg News, which forecast a 0.5 percent drop.

The Hong Kong Monetary Authority said in a report this month that domestic inflation pressures are likely to remain "subdued" because of unemployment. Prices may start to climb again after a government subsidy for public housing rentals expires this month and as the economy expands after emerging from a recession in the second quarter.

A government spokesman says that consumer price inflation remained slightly negative in August, as both import prices and local business costs softened amidst the weak global economic conditions. The spokesman adds that looking forward, upward pressure on consumer prices should remain subdued in the coming months.

"Although consumer confidence has improved, consumer prices are likely to continue coming under pressure, as consumers will remain cautious in spending amidst mounting job losses," said Joanne Yim, chief economist at Hang Seng Bank.

Netting out the effects of all government's one-off relief measures, the year-on-year rate of change in the CPI in August 2009 was minus 0.3 percent, the same as that in July 2009. On a seasonally adjusted basis, the average monthly rate of change in the underlying Composite CPI for the 3-month period from June to August 2009 was minus 0.1 percent, also the same as that for the 3-month period from May to July 2009.

Kevin Lai, an economist at Daiwa Institute of Research in Hong Kong, forecasts that inflation may be back as early as October. In August, the government forecast full-year inflation of 0.5 percent.

Hong Kong's economy grew a seasonally-adjusted 3.3 percent in the second quarter from the previous three months as declines in exports and household spending moderated.

China Daily - Bloomberg News

(HK Edition 09/23/2009 page3)