The territory's composite consumer price index (CPI) fell 1.4 per cent year-on-year after falling 1.9 per cent the previous month, the government said in a statement yesterday.

CPI (A), one of three key sub-indices based on 50 per cent of households spending between HK$4,500 (US$577) and HK$18,499 (US$2,372) a month, fell 1.2 per cent year-on-year.

"The number is within expectations. Deflation mainly eased because of an improvement in property rentals," said Dao Heng economist Daniel Chan.

"But a sharp fall in durable goods' prices shows that consumer demand is still weak," he said.

Hong Kong has been gripped by deflation or falling prices for 30 consecutive months.

The government said the main reason deflation eased in April was the dissipation of the effect of a one-off rebate on electricity charges earlier this year and lesser declines in private housing rentals.

Energy accounts for around 10 per cent of composite CPI, while the property component accounts for nearly 30 per cent.

Prices of durable goods declined the most, by 7 per cent in the composite number, followed by a 3 per cent fall in housing.

In contrast, prices of alcoholic drinks and tobacco rose by 3.6 per cent.

For the first four months of 2001, composite CPI was 1.8 per cent lower on the year.

Deflation is expected to linger in Hong Kong this year, helping to keep the economy's nominal growth rate low, as a slowdown in the world economy dampens appetite to spend.

Confidence picks up

In another development, public confidence in Hong Kong's economic outlook and job prospects improved significantly in May, the Hong Kong Policy Research Institute said in its latest survey.

Confidence in the territory's economic prospects increased by 15.1 per cent to 75.5 points, compared to the previous month, while the index on "improvement on unemployment" rose 15.2 per cent to 68 points, the institute said in a statement.

The results contrasted with relative gloom over prospects for the Hong Kong economy in previous months which has coincided with a deterioration in the jobless rate to 4.6 per cent, a sharp slowdown in total export growth and sluggish consumer demand. The local economy is expected to pick up in the second half of this year if the sputtering US economy revives, some economists say. The impact of five successive interest rate cuts is also likely to filter into the system later in the year.

Agencies via Xinhua