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HK's consumer prices fall for the 5th year
( 2003-11-25 10:16) (China Daily HK Edition)

Hong Kong suffered its fifth full year of debilitating deflation in October, but economists expect inflation to return in the next 12 months as consumer confidence recovers, allowing retailers to finally boost prices.

"If you look in the street, people seem a lot more energetic about shopping," said Marvin Wong, an economist at Merrill Lynch. "I expect deflation to end by the middle of next year and see mild inflation in the second half."

The consumer price index (CPI) fell 2.7 per cent in October from the same month a year ago, the government said yesterday, beating forecasts for a 3 per cent decline. It was the 60th month of price declines but prices improved on a 3.2 per cent slide in September.

Housing rents and consumer durables goods prices were the biggest drag on CPI last month, the government said. Rents fell 5.7 per cent from a year ago while consumer durables prices dropped 5.5 per cent.

Clothing and footwear prices were relatively stable, slipping just 0.7 per cent, supported by a shopping spree by mainland tourists during national week holidays.

The government attributed the smaller decline in CPI compared with September to the dissipation of a three-month waiver on property rates last month. Deflation should ease further in November as waivers on utility charges and property rates, part of a post-SARS economic stimulus package, came to an end in October, economists said.

Consumer prices have slumped more than 16 per cent in the past five years and deflation is seen as one of the main hurdles facing Hong Kong before the once booming territory can grow strongly again.

The economy, however, appears to be emerging from recession and that is making consumers more confident about spending again.

At the Optical 88 eyewear store in Tai Koo Shing on Hong Kong Island, sales have been robust since soon after the deadly SARS virus came under control in June.

"Business is very good, better than last year," said an assistant at the shop. "During SARS people didn't want to have their eyes examined but now they are coming back."

Prices of eyeglasses, however, are largely fixed by suppliers and were unlikely to rise soon, she said.

"Retailers are not able to put up prices too much yet but they are no longer discounting," said Tai Hui, an economist at Standard Chartered Bank.

Further weakness in the US dollar would also help ease pressure on prices. The Hong Kong dollar is pegged to the US currency, which has been depreciating against major currencies for more than a year.

However, retailers have been unable to pass higher prices for imports from Japan and Europe on to the consumer so far because demand for their goods has been so weak.

Prices of tourism-related goods and services meanwhile are likely to get a boost next month with an expected revival in visitor arrivals from Europe and the US over the Christmas period.

Travellers from Hong Kong who can fly return to London for a modest HK$5,500 (US$705) with British Airways this month, for example, will have to pay nearly double that from mid-December, travel agents say.

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