Prices of goods in Hong Kong fell for the 40th consecutive month last month although the rate of deflation eased. The Census and Statistics Department said overall prices as measured by the composite Consumer Price Index (CPI) last month fell just 2.3 per cent year on year, 'considerably smaller than the 3.5 per cent decrease in January'. Private-sector economists said deflation would continue for the rest of the year, although the first two months showed a somewhat exaggerated decline in prices. 'What with the Government giving homeowners a break on rates and the further rebates in electricity prices, that probably had a big effect in helping drag down overall consumer prices,' National Australia Bank economist Kevin Lai said. Despite last month's slower rate of deflation, the Government gave little hope that the problem would end soon. It attributed the slower rate for the month to the 'Chinese New Year effect', reflecting stronger demand during the holiday period. A government spokesman said that 'overall consumer prices remained on a downtrend, amid generally subdued price pressures from both domestic and external sources'. The Government expects prices to decline 2.8 per cent over the year. However, some economists were less pessimistic. In a recent report from BNP Paribas Peregrine, the investment bank said it expected a 1.5 per cent drop in consumer prices for the year. Mr Lai said he expected prices to fall 2 per cent for the year. 'There are some positive factors coming through, including higher oil prices,' he said. 'Hopefully, we will also ride through the cyclical downturn in the economy by the second half of the year, so there will be some support for prices.' However, Morgan Stanley economist Denise Yam said she believed there was little hope of reflation in the next two years. 'Joblessness has surged to 6.8 per cent, [so] consumer demand is undoubtedly weak,' Ms Yam said. 'In addition, deflationary pressure was exacerbated by the depreciation of the yen and other regional currencies. 'In response to the additional concessions made in the latest Budget on property rates as well as water and sewage charges in the next fiscal year, we have revised our composite CPI forecast to minus 3 per cent in 2002 from minus 1 per cent previously,' she said. Spending for more expensive food and tour packages during the Lunar New Year festival reduced the overall decline in prices last month, but this was countered by cheaper durable goods, housing and power. Taken together, these items managed to help push the overall price index lower. In a statement, the Government said: 'The smaller year-on-year decreases in the CPI in February 2002 than in January 2002 were mainly attributable to the prices of basic foodstuffs, charges for package tours and inbound and outbound transport fares being higher than usual at around the Lunar New Year festival, which occurred in February this year but in January last year.' It also said that the 'rates concession by the Government for this year continued to carry [an] impact'. 'This particular factor was estimated to have dampened the composite CPI, CPI(A), CPI(B) and CPI(C) by 1 per cent, 1.2 per cent, 0.9 per cent and 0.7 per cent, respectively,' the statement said. Segmented by average monthly expenditure, the prices of goods for those 50 per cent of households spending less than HK$18,499 per month fell 2.4 per cent. The 30 per cent of households with average expenditure of between HK$18,500 and HK$32,499 per month saw prices fall 2.3 per cent, while the 10 per cent that spend up to HK$65,999 per month saw prices fall 2 per cent.