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SCMP Reporter

Hong Kong's key measure of year-on-year inflation fell to 6.4 per cent in May, mainly as a result of lower food prices.

   However, removing food costs from the index reveals that the underlying rate had been a consistent 6.6 per cent for the first five months.

   The Government yesterday said the Consumer Price Index (A), the territory's broadest measure of inflation, fell 0.5 per cent from the previous month.

    The index tracks the 50 per cent of Hong Kong households spending between $2,500 and $9,999 a month.

  A Government spokesman said: 'It was mainly due to lower prices of some fresh food items, including vegetables and live poultry.'   He said miscellaneous consumer services, such as the reduction in charges for long-distance telephone calls, helped ease inflationary pressure.

  The territory is also benefitting from a slowdown in inflation in the domestic economies of its major trading partners.

   In addition, the continued robustness of the US dollar, to which the Hong Kong dollar is pegged, eased any cost-push inflationary pressures arising from major trading partners.

    There also has been little domestic pressure because of the continuing downturn in retail demand.

   'We are seeing a steady inflationary trend. In the next two months the underlying rate of inflation will remain roughly the same,' Hongkong Bank economic adviser George Leung said.

   Slight variations could arise because of seasonal or one-off factors, such as the impact of the recent heavy rain on food prices.

   The Hongkong Bank is revising down its earlier forecast of an annual inflation rate of 8 per cent.

   While not providing the figure, Mr Leung said it would be significantly lower.

   Connie Leung, head of Asia research for HSBC Asset Management, believes the annual rate will rise slightly from its current level.

   'A stronger yen will result in a higher cost of imports,' she said.

  'Inflation from China could also rise during the second half of the year.'    She is anticipating it will peak in the 7 to 7.5 per cent range for the year.

   CPI (B), the index for households spending between $10,000 and $17,499 a month, also fell slightly to 7.2 per cent from 7.4 per cent.

   The composite CPI, which is based on the combined expenditure of all households, had a year-on-year increase of 7.4 per cent in May, down from 7.7 per cent in April.



Lower food costs push inflation down to 6.4pc