RTTNews - Hong Kong consumer prices dropped for the second consecutive month in July and marked its biggest fall in five years, the Census and Statistics Department said on Thursday.

The consumer price index or CPI declined 1.5% year-on-year in July, worse than a 0.9% fall in the previous month. The decline was in line with economists' expectations. This was the first decline in CPI since January 2005 and the biggest since early 2004. The CPI had grown 6.3% in the same month last year.

The CPI, excluding the effects of all government's one-off relief measures or underlying CPI, dropped 0.3% in July, in contrast to the 0.4% growth in the previous month. This was mainly due to the decline in food prices and smaller increase in private housing rentals.

During the first seven months of the year, the CPI rose 0.5% from the same period of the previous year. For the three months ending July, the index dropped 0.8% year-on-year.

A Hong Kong government spokesman said, the consumer prices decline in July was a part of a global phenomenon. The government expects the underlying consumer price inflation to stay negative in the coming months, as local price pressures continue to subside and import prices remain soft.

Last week, the government forecast headline consumer price inflation for 2009 at 0.5%, revised down from 1% predicted in May. Underlying consumer price inflation is expected at 0.9%, same as in May.

Though the main economic indicators are yet to confirm an economic recovery, Hong Kong's economy emerged from the worst recession in the second quarter, prompting the government to raise the outlook for this year.

The government expects the recovery process to be rather bumpy. It now expects the economy to contract by 3.5%-4.5% in real terms this year, up from 5.5%-6.5% decline forecast in May. Most private sector analysts are currently projecting the economy to contract by 3.5%-5.5%.

The gross domestic product rose 3.3% sequentially in the second quarter after falling 4.3% in the previous quarter. That was the first increase following declines in four consecutive quarters.

The unemployment rate remained unchanged near its four-year high in the three months ending July. The seasonally adjusted jobless rate stood at 5.4% in the May to July period. Going forward, the government expects the pace of the rise in the jobless rate to be very slow and very subdued.

For comments and feedback: contact editorial@rttnews.com