Wet weather behind hike in prices

Consumer are likely increase more than 2 percent this year if the recent spell of bad weather persists, leading to a hike in fruit and vegetable prices, the head of the Council for Economic Planning and Development said yesterday.

On May 18, the Directorate-General of Budget, Accounting and Statistics (DGBAS) predicted a 1.8 percent increase in the consumer price index (CPI) this year. The inflation benchmark grew 2.3 percent last year.

"This year, we are targeting inflation at 2 percent, but I'm not ruling out the possibility of a higher figure," council Chairman Hu Sheng-cheng (胡勝正) said.

"A major uncertainty is the price of agricultural products. Prices are usually higher during the typhoon season in August and September. However, we've been having heavy rains recently," Hu said.

Fruit vegetableS represent the second-largest component, after housing, in DGBAS' CPI formula.

Last week, the bureau reported that the CPI rose 1.58 percent last month from a year earlier on soaring oil costs, with the inflation rate for the first five months of the year standing at 1.37 percent.

Unusually downpours have hit the country in the past two weeks, resulting in agricultural losses of NT$621.27 million (US$19.2 million) as of 3pm yesterday, according to the latest statistics compiled by the Council of Agriculture.

The crops most devastated by the flooding include watermelons, rice, pears, citrus fruits, persimmons, grapes, green onions and leafy vegetables, the council said.

Some prices have already risen dramatically in local markets.

The rising consumer prices have increased the possibility of another interest rate hike by the central bank. The bank already views the current level of interest rates as too low and is concerned that this situation might exacerbate domestic capital outflows.

The bank is scheduled to hold its quarterly policy meeting later this month. On March 30 the bank raised its rediscount rate charged to commercial banks by 0.125 percentage points to 2.375 percent for the seventh consecutive quarter.

Goldman Sachs economist Enoch Fung said in a report on May 26 that the central bank may raise its key rate by another 0.125 percentage points at this month's meeting. He said the likelihood of a rate hike in the September meeting would depend on the inflation data in the next few months.