Alleviating Deflation

39. In implementing our strategy for economic revival, we need to focus on two problems: deflation and the fiscal deficit.

40. Although prices, asset values and rents have been falling for more than five years, deflation is gradually easing off following Government measures to stabilise the property market, attract tourists and stimulate consumption. This has boosted local consumption and investment. We expect that deflation will taper off and hopefully disappear altogether. Following the downward adjustment over the past few years, asset and labour prices in Hong Kong have become more competitive. This has laid a solid foundation for the next phase of economic revival.