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May CPI accelerates on fuel costs

The nation's consumer prices rose at the fastest pace in four months last month as rising oil costs pushed fuel charges higher and as heavy rains hurt harvests.

The consumer price index rose 1.58 percent from a year earlier after increasing 1.23 percent in April, the statistics bureau said in a statement in Taipei yesterday.

Inflation was the fastest since January and outpaced the 1.27 percent median forecast of 12 econo-mists surveyed by Bloomberg News.

"Rising oil and energy prices could speed up inflation in coming months," said Lee Ming-han, a Taipei-based economist at Grand Cathay Securities Corp (大華證券).

With oil prices surging, central bankers in Asia, Europe and the US have been tightening monetary policy on concern companies will begin passing higher costs on to consumers. Chinese Petroleum Corp (中油), the nation's biggest fuel supplier, on April 19 raised domestic gasoline and diesel prices by as much as 9.3 percent.

Central Bank of China Governor Perng Fai-nan (彭淮南) said on May 9 that interest rates were "still some distance away from what I'll call a neutral rate," signaling the bank may add to seven straight rate increases since 2004, the longest stretch since 1991.

Diesel and fuel costs gained 15.25 percent last month from a year earlier and 5.47 percent from April, according to the statement. Food prices jumped 2.03 percent from a year earlier and 2.34 percent from April. Vegetable prices rose 18.29 percent from April.

"The increase in domestic oil products prices pushed up fuel costs," said Wu Chao-Ming (吳昭明), a section chief at the statistics bureau, at a briefing in Taipei.

"Prices of vegetables and other foodstuffs jumped as heavy rains hurt supply," he added.

The central bank is likely to raise its key interest rate by 0.125 of a percentage point at June's meeting, said Lee, who forecast inflation will reach 1.87 by year-end.

The statistics bureau on May 18 raised its forecast for economic growth this year to 4.31 percent from 4.25 percent, and that for inflation to 1.8 percent from 1.7 percent. Crude oil futures in New York have jumped 34 percent in the past one year.

Soaring oil prices are threatening to stoke inflation in Taiwan, South Korea, Malaysia and China while curbing gains in consumer spending, making it more difficult for central bankers and governments to control inflation without choking economic growth.

Core consumer prices, which exclude food and energy costs, rose 0.7 percent from a year earlier after gaining 0.59 percent in April, the bureau said.

China Airlines (華航) and EVA Airways Corp (長榮航空), the country's two largest carriers, raised fuel surcharges starting on April 6, the second increase in six months, because of higher fuel costs.

Taiwan Power Co (台電), the nation's only electricity retailer, is waiting for the economics ministry's approval for an average 5.8 percent increase in prices after a government committee agreed to the plan. The new prices would be effective from next month at the earliest.
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