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Inflationary pressures rising: analysts

The continuing rise in the prices of oil and various consumer goods are expected to push up the nation's inflation benchmark -- the consumer price index (CPI) -- in the second half of the year, economists said yesterday.

The CPI edged up a mere 0.61 percent in the first half of the year despite increases in the prices of oil, metal and grains, Wang Lee-rong (王儷容), a director at the Chung-Hua Institution for Economic Research's (CIER, 中經院) Center for Economic Forecasting, said at a media briefing yesterday.

But with the wholesale price index -- which measures production costs -- rising 7.11 percent year-on-year during the same period, importers are under heavy pricing pressure and will eventually have to pass on these cost increases to consumers, Wang said.

The Taipei-based think tank forecasts that the CPI would rise 2.1 percent year-on-year in the third quarter and 2 percent in the fourth quarter thanks largely to higher oil prices and possible increases in vegetable prices because of typhoons.

For the whole year, the CIER expects the CPI to climb 1.5 percent.

"I think the central bank will very likely raise the benchmark interest rate by another 0.25 percentage points to ease inflation," Wang said.

On June 21, the central bank raised the discount rate on 10-day loans by 0.25 percentage points to 3.125 percent -- its 12th rate hike since October 2004.

Cheng Cheng-mount (鄭貞茂), chief economist and a vice president at Citibank Taiwan Ltd, said on July 10 that he expected the central bank to raise the benchmark rate by another 12.5 basis points in September, citing inflationary and currency concerns.

The central bank is scheduled to hold its quarterly board meeting at the end of September. But the bank said in a statement released late on Thursday that it might move forward the date of its monetary policymaking meeting to cope with the changing conditions.

"The [CPI] figure is still moderate," said Liang Chi-yuan (梁啟源), a research fellow at the Institute of Economics at the Academia Sinica. "The central bank should not overreact to the CPI issue."

Economic growth should be the bank's bigger concern, Liang said, adding that improving the economy to boost consumer's purchasing power was a better measure than easing consumer prices.

Raising interest rates could put a damper on GDP growth and affect market stability, including housing loans and the property sector, Liang said.

The CIER also said it had revised its GDP growth forecast for this year to 4.26 percent, up from the 4.17 percent estimate it made in April, citing improving private consumption.

Private consumption is expected to grow 2.91 percent for the year, supported by the stock market's robust performance, the CIER said.

Private investment is also expected to rise 2.17 percent this year on the back of various incentives offered by the government ahead of the legislative and presidential elections early next year, it said.

The growth momentum will continue through next year, driving GDP growth to 4.52 percent, it CIER said.
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