The prices of clothes, electrical goods and rent have suffered falls of up to 31 per cent since November 1998.
But wages have stayed the same, with the median monthly household income hovering at around $18,000 a month.
The chairman of the Hong Kong Retail Management Association, Yu Pang-chun, predicted the rate of deflation will fall by up to three per cent next year.
'We forecast zero growth in volume but expect the retail environment to stabilise, but because of deflation the sales value will decrease by two to three per cent for the year,' Mr Yu said.
'After that period there are too many unforeseeable factors such as a possible war with Iraq and the economic situation in the US and Europe.'
A spokesman for Marks & Spencer, Ko Wan-kit, said: 'In April last year we were getting a better margin from our supplier so we can transfer those prices to the customer. We have also seen more loyalty from customers and they think before they buy.'
