Inflation slows as weak global demand begins to take hold

PUBLISHED : Friday, 24 April, 2009, 12:00am
UPDATED : Friday, 24 April, 2009, 12:00am

Inflation continues to slow amid weak global demand, with prices rising by just 1.2 per cent last month compared with a year ago.

This is down from the 2 per cent inflation recorded for the first two months of the year. Taking January and February data together is a more accurate reading of consumer prices as they are usually distorted by the different timing of the Lunar New Year holiday from year to year.

With few signs of a pickup in global economic activity this year, economists expect consumer prices to start falling year on year soon.

A government spokesman said falling private housing rents and food prices were mainly responsible for the more moderate inflation. One-off government relief measures, such as the electricity charge subsidy, also helped keep inflation artificially low. Consumer prices rose 2.6 per cent last month without the concessions, down from 3.3 per cent for January and February combined.

Month on month, there was practically no change in average prices in the first quarter of this year, according to Census and Statistics Department data. This has not happened since January 2005.

'Inflationary pressures are likely to recede further looking ahead, in the face of the global economic downturn,' the spokesman said.

Terence Chong Tai-leung, associate professor of economics at the Chinese University of Hong Kong, said the zero month-on-month price changes so far this year indicated that inflation would end soon.

Year-on-year price changes tend to lag behind other economic data and have yet to fully reflect the global downturn. There were initial fears of serious inflation as governments pumped hundreds of billions into the economy in the hope of averting a deep and long global recession. This would prompt interest rates to rise - a common tactic by central banks to combat escalating asset prices - possibly scuppering the recovery.

Professor Chong said: 'Price inflation will probably turn negative by the middle of the year. Although some food and transport prices have risen, inflation has eased because of falling oil prices.'

Last month, prices for alcoholic drinks and tobacco were up 22.2 per cent, rents were up 5.7 per cent, food increased 5.4 per cent, and clothing and footwear were up 4.3 per cent. Utilities charges fell by 42.9 per cent, largely due to the subsidy. Durable goods prices eased by 2.5 per cent.