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.' Wellcome's marketing director, Doug Brown, said wages and shop rents had remained constant but there was still pressure to reduce prices. 'During a recession, supermarkets normally enjoy sales growth as people stop dining out, but this does not occur in Hong Kong. Hong Kong's residents opt to trade down to cheaper takeaway food instead of dining more at home or bringing food to work,' Mr Brown said. Hong Kong imports virtually all of its products from overseas so exchange rates for non-US imports greatly affect prices. Mr Brown added: 'The average standard of living in Hong Kong is high by most standards, but the fact is that the majority of people have very modest incomes and are very careful with their expenditure. 'Most food shopping is done by housewives who compare supermarkets, provision shops and wet markets for the best deals. They will walk 10 or 15 minutes to save 10 cents on an orange.' Graphic: CP11XGET