Utility bills have shrunk, thanks to the government's subsidies on electricity charges, while alcohol and tobacco are getting more expensive, according to official statistics. Consumer prices dropped 0.9 per cent last month compared with a year ago, the first year-on-year decline since January 2005, the Census and Statistics Department said yesterday. Netting out the effects of one-off government relief measures, last month's Consumer Price Index rose 0.4 per cent - compared with 1.3 per cent in May. Economists say Hong Kong has entered a deflationary cycle, noting that its headline inflation rate - which includes the effects of the relief measures - fell last month for the first time in four years. But the price decreases would be mild or near zero, at least until the end of this year, before the world economy recovered, they said. A government spokesman said: 'Consumer prices ... remained on an easing trend, as local wages and rentals continued to adjust to the economic downturn.' Among the various components of the CPI, the cost of electricity, gas and water recorded the greatest year-on-year decline, of 42.5 per cent, because of the electricity subsidies. Durable goods fell 3.6 per cent. Alcohol and tobacco prices increased most, by 22.5 per cent, followed by rents, by 3.7 per cent. The latest figures were within market expectations, Chinese University associate economics professor Terence Chong Tai-leung said. The city had entered a deflationary cycle that would last at least for the whole year, he predicted. 'From now until the end of this year, we will see negative CPIs because import prices have been dropping ... and the pay cuts of civil servants will further affect the consumer market.' He expected the real CPI, which excludes government relief measures, for the coming months to fall to between 0.5 per cent and minus 1.5 per cent. Mo Pak-hung, associate professor at Baptist University's economics department, said that because of the global downturn, inflation would not return before next year. Hang Seng Bank's senior economist Irina Fan Yuen-yee expected the monthly index to remain between 1 per cent and minus 1 per cent in the next 12 months. 'Because the global economy remains weak, demand will not be strong ... Thus it's difficult for prices to surge,' Ms Fan said. 'But a huge plunge in prices is not expected because ... we all know that governments have pumped a lot of money into the market.' She expected the city's full-year inflation rate this year to hover around 0.5 per cent. The government's statistics also showed the index rose 0.8 per cent in the first six months, compared with the same period last year. 'With the economy still in a weak state and with many of Hong Kong's trading partners also experiencing price declines, price pressures from both the local and external fronts are likely to subside further in the period ahead,' the spokesman said. 'This is all part of a worldwide phenomenon amid the global economic recession.'