Deflation in Hong Kong is caused mostly by cyclical economic forces rather than long-term structural problems from integration with the mainland, according to the International Monetary Fund.
The IMF said the price gap between Hong Kong and neighbouring Shenzhen had had only a very small effect on Hong Kong's 41-month deflationary stretch.
Some economists have stressed such structural causes of deflation, arguing that because Hong Kong sits on highly competitive China's doorstep, shoppers will always cross the border to buy cheaper goods, eventually forcing down Hong Kong prices - including property values and salaries - to the same level.
However the IMF said in an issues paper that price equalisation caused only about 2 per cent of overall deflation.
Most important was unemployment - which contributed to 36 per cent.
This was followed by nominal credit rates at 14 per cent and the nominal effective exchange rate at 5 per cent.
