The government's public housing rental waiver, the suspended employee restraining levy and an electricity charge subsidy helped lower the year-on-year increase in the Consumer Price Index (CPI) rate for September by 3.1 percentage points.

Without the effects of such measures, the underlying inflation rate for the month stood at 6.1 percent.

It was the first CPI growth drop since mid-2007. The year-on-year underlying inflation rate dipped to 6.1 percent in September from 6.3 percent in August as food inflation moderated but remained high.

"The headline inflation fell notably in September, as the relief measure of an electricity subsidy began to take effect," a government spokesman said. "Underlying inflation edged down in September, mainly reflecting the tapering of local food inflation and the implementation of free senior secondary education. This was the first decline since mid-2007, when underlying inflation began to pick up."

Among various components of the CPI, food recorded a large year-on-year increase in price, surging 14.9 percent in September. Housing (mostly private rents) and transportation costs rose 2.7 percent and 4 percent, respectively, in the same period.

"Looking ahead, the retreat of food and energy prices in the international markets, the recent strength of the US dollar, and weaker demand conditions amid the global financial tsunami should continue to reduce the upside risks to inflation," the spokesman added. "The alleviating effects of the government's relief measures will also help contain headline inflation in the coming months."

Items that saw price declines in September, year-on-year, included utilities (electricity, gas and water); clothing and footwear; durable goods; and alcoholic drinks and tobacco.

"Hong Kong's economy is slowing, and some analysts forecast that it is heading for a recession as trade and finance are being affected by the global economic slowdown. A weak economy is likely to hurt consumer spending and reduce inflation pressure as retailers will have little room to raise prices," the analysts said.

(HK Edition 10/24/2008 page2)