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 22 June 2000 Deflation
to Remain Through Summer Comment by the Chamber's Chief Economist, Ian K Perkin, on the May 2000 Consumer Price Index (CPI) numbers, issued today.
There was slight pick-up in deflation in May to 4.5 per cent year-on-year from 4.4 per cent in April, with some lower food prices adding slightly to the deflation rate. General retail prices and the continuing weakness in residential rentals were, however, key factors in continuing deflation. These are likely to continue throughout the Summer, with retailers already starting summer sales and the residential rental market usually being weak during this traditional holiday period in Hong Kong. The continued decline in housing rentals is still having a marked effect on the overall consumer price outcome, contributing more than two-thirds of the decline in the composite consumer price index. Working in the opposite direction, however, could be both food and fuel prices. Fresh food prices can be volatile during the Summer wet season when supplies are sometimes disrupted by inclement weather. They can sometimes rise rapidly causing a short-lived "spike" in prices and therefore the food price index. Higher fuel prices began to show through in the index last month and with higher world crude oil and gasoline prices now prevailing world-wide, could see some further upward pressure in the coming months. Continuing deflation - and the prospect of future deflation - also means that real interest rates are still at extremely high levels, with the nominal prime rate of 9.5 per cent giving a real rate of 14 per cent once deflation is taken into account.
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