The consumer price index in Hong Kong eased off to 4.6 percent in August from 6.3 percent in July.

The decline, however, was mainly attributed to the government's relief measures.

The government's payment of three-months of public housing rents and the two-year Employees Retraining Levy suspension had an impact on the mounting inflationary pressure, reducing the consumer price index by 1.7 percentage points in August.

The underlying inflation stayed flat at 6.3 percent as July's after stripping the one-off concessions of the government.

The Census and Statistics Department said the government's relief package will continue to mitigate the pressure on headline inflation over the coming months.

The department pointed out that the underlying price inflation showed sign of stabilizing in August after a significant increase since late 2007. Food inflation, in particular, tapered notably to offset the climbing private housing rents.

Meanwhile, food prices (excluding meals bought away from home) recorded a 17 percent year-on-year increase. Rice and fresh-water fish are among the food items with the largest price hike, up 63.6 percent and 34.1 percent respectively.

Paul Tang, chief economist of Bank of East Asia, predicted that the consumer price index in Hong Kong is expected to soften over the coming months with the drop in food price imported from the mainland.

He believed that the index will average around 4.5 percent throughout the whole year.

Besides, the department recorded 7.1 percent price increase in electricity, gas and water, and 6.4 percent in meals bought away from home.

However, prices of durable goods, alcohol and tobacco went against the ascending trends, dropping 1 percent each for the first two items and 0.9 percent for the tobacco.

The composite consumer price index between January and August rose 5.2 percent over the same period last year.

Looking ahead, the department said the recent easing of world food and energy prices and the rebound of the greenback should help alleviate the pressure of import inflation. The improvement in labour productivity will also help contain domestically-generated price pressure.

"These favorable factors, if continued, will provide an offsetting force against the faster rise in housing costs, due to the earlier surge in local private housing rents."

A CLSA report said that rising inflation across Asia will be the catalyst for high borrowing, spending and asset prices, bringing gearing and consumption in the region's economics back to pre-1997 levels.

(HK Edition 09/23/2008 page2)