A woman carrying big shopping bags walks in a commercial district in Hong Kong. Bloomberg News

HONG KONG: Consumer prices in the city remained unchanged last month from a year ago as the economic recession reduces Hong Kong residents' desire to spend, official figures showed yesterday.

It is the first time since June 2004 that prices have not risen as slowing food prices and housing rents put pressure on the consumer price index (CPI). Economists predict that Hong Kong may experience deflation in the coming months, although the trend would be temporary.

The underlying inflation rate, which excludes temporary factors such as subsidies on utility bills and other public services, was 1.3 percent in May from a year earlier, compared with 1.9 percent in April, the Census and Statistics Department (CSD) said on its Web site yesterday.

"It's a bit worse than we expected. There was a decline in prices across the board, so from next month we might see a fall in the CPI. A lot of government measures, including rate waivers, are pushing down headline inflation and technically we will see deflation, but in real terms the trend is disinflation," said Paul Tang, senior economist at Bank of East Asia.

By the end of the year, the underlying trend will be deflation, but not as serious as it was after 1997, Tang believes.

"I expect the worst of the economic performance was in the first quarter and the economy should perform better in coming months. Prices will lag, but early next year underlying inflation should re-emerge," he said.

The market forecasted headline inflation, or total inflation, of 0.4 percent, according to data from Reuters.

Hong Kong, an export-oriented economy, has seen its major customer markets the US and Europe withdraw orders, pushing the city's jobless rate to the highest in more than three years, while weak consumer spending is putting pressure on retail prices.

Financial Secretary John Tsang last month announced HK$16.8 billion of stimulus and economic rescue measures, including waivers of property rates and public-housing rentals, and said more packages would be issued if needed.

Kelvin Lau, an economist at Standard Chartered Bank, said the zero inflation rate may encourage spending.

"It's good for consumers. Things are getting cheaper so they are more affordable for consumers during these challenging economic times. By product, price pressure is easing across the board. This is broad-based disinflation, not deflation yet," Lau said.

"As long as consumers in Hong Kong are not expecting prolonged structural deflation, as we saw after the Asian financial crisis, they will spend without worrying that prices will later fall."

The government estimates that given the current economic climate, inflationary pressure will remain weak in the near term.

"Consumer price inflation came down further in May. The receding of local and external price pressures has been part of the adjustment process in the midst of the severe global economic downturn," a government spokesman said yesterday.

(HK Edition 06/23/2009 page4)