Hong Kong's November headline inflation rate probably fell to 1.6 percent, its lowest in over a year, as consumers and businesses cut spending and investments after the city slipped into a recession, a Reuters survey shows. Lower oil prices, declining food costs and a government's subsidy on household electricity consumption helped slow price increases, economists said.
"Inflation will not be an issue in Hong Kong for a while," said Daniel Chan, senior investment strategist at DBS Bank. "As the economy continues to slow down, that will lead to further weakness in inflation." Hong Kong, an international trade and financial hub, slipped into a recession in the third quarter, its first since the Sars outbreak five years ago, and looks unlikely to rebound until the second half of 2009, a Reuters poll showed.
The weak economy has begun to push down property prices, and that will exert downward pressure on private housing rents, economists say. Private rents account for more than 20 percent of the composite consumer price index, the main gauge of inflation. "Commodity prices are falling and the soft real estate market won't drive up rents in the near future," said David Cohen, director of Asian economic forecasting at Action Economics. "Inflation will likely continue to slow down."