ENG-2006 — Page 87

Chart 15

Number ('000)

50

40

30

20

10

Sale and purchase agreements by broad type of property

Residential property

Non-residential property

The Economy 59

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2002 f 2003

2004

2005

2006

Despite a modest rebound during the second half, overall property sales slowed in 2006 as a whole, indicating further market consolidation after the earlier hectic situation.

Price Movements

Consumer price inflation, though inching up during the first three quarters of 2006, remained moderate through to the end of 2006. The strong economic upturn, coupled with the low inflation rate, provided a highly supportive marcroeconomic environment for Hong Kong. The rapid increase in business investment over the past year or so had contributed to notable productive improvement and capacity expansion, which in turn helped to contain inflationary pressures. The steadier increase in housing rents over the course of the year also helped. Externally, the substantial easing in oil prices in the latter part of 2006 offset to some extent the mild impacts of the weakening of the Hong Kong dollar alongside the US dollar and the modest appreciation of renminbi on import prices. In overall terms, import prices picked up slightly towards the end of the year. On a year-on-year basis, the increase in the Composite Consumer Price Index inched up from 1.6 per cent in the first. quarter to 2 per cent and 2.3 per cent respectively in the second and third quarters, before edging down to 2.1 per cent in the fourth quarter following the easing of oil prices and a steadier increase in housing cost.

The GDP deflator, recorded a further slight decline of 0.4 per cent in 2006. While export prices could rise only moderately because of the need to stay competitive, import prices rose because of the rise in oil prices which later eased but there was still a knock on effect from a weaker US dollar and the appreciation of renminbi in the latter part of the year. Excluding the effect of the terms of trade, the domestic demand deflator actually rose by 1.8 per cent in 2006, largely in sync with consumer price inflation.