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Abstract
Hong Kong SAR has experienced continued deflation since the last quarter of 1998. The composite consumer price index (CPI) fell by almost 14 percent from the third quarter of 1998 until December 2002; about half of this deflation is accounted for by the decline in housing costs, following the bursting of the bubble in property prices that had built up in the mid-1990s.1 Other items that have also contributed significantly to the decline in prices include food, clothing and footwear, and durable goods (Table 5.1). Falling prices have contributed to increased real debt burdens, depressed consumer confidence, and tightened monetary conditions, and could have helped feed the contraction in aggregate demand (Table 5.2).
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