Fri, Aug 10, 2007 - Page 12 News List

Threat of higher inflation low, researcher says

By Jason Tan  /  STAFF REPORTER

Despite recent price hikes in raw materials causing increased prices for certain food products, one analyst said yesterday that the risk of higher inflation was small.

"Prices of raw materials will gradually stabilize and go back to normal levels," said Wu Chung-shu (吳中書), a research fellow at Academia Sinica.

Rising prices for flour, corn and crude oil have forced consumers nationwide to dig deeper into their pockets to purchase staples, including dairy products.

Major fast food chains such as KFC, McDonald's and Mos Burger (摩斯漢堡), have reflected the increased costs on selected items.

"Products such as dairy items are frequently needed by consumers, so they feel the pain [of higher prices]," Wu said on the sidelines of a forum about the possibility of higher inflation.

But IT products, especially notebooks and flat-screen TVs, are now cheaper, he said.

The cost of food, which accounts for 25 percent of the total consumer price index (CPI), fell 4.79 percent last month year-on-year after a 3.15 percent drop in June, figures released by the Directorate General of Budget, Accounting and Statistics (DGBAS) on Monday showed.

Overall, the CPI last month declined 0.34 percent from a year earlier due to declines in vegetable and fruit prices, the agency said. This was compared to a rise of 0.11 percent in June.

For the first seven months of the year, the CPI was up 0.47 percent from a year earlier, while the wholesale price index (WPI) was up 6.65 percent, DGBAS statistics showed.

Even though the large gap between the CPI and the WPI hints that manufacturers have not yet passed on increased costs to consumers, Wu was not worried about the risk of higher inflation.

"Internal demand is slowly warming up, but by a small percentage," Wu said, adding that he expects the CPI will not go beyond 2 percent for the second half of the year.

The DGBAS predicted in May that CPI would likely rise by 1.46 percent this year, compared to an increase of 0.6 percent last year.

To stem the inflationary threat, the central bank lifted its discount rate by 25 basis points to 3.125 percent in June.

Bank Governor Perng Fai-nan (彭淮南) said last month that the bank was closely watching consumer prices.

Wu said he expected the central bank to raise its benchmark rate by a quarter-point next month to keep inflation in check, as well as to be in sync with the movement of US federal fund rate.

Meanwhile, rising crude oil prices will not exceed US$100 per barrel this year, indirectly easing the inflationary burden, Liang Kuo-yuan (梁國源), president of the Polaris Research Institute (寶華綜合經濟研究院), said at the same forum.

"Investors have already reaped their gains during the manipulation of the previous oil price hike," he said.

Liang predicted that the price of oil would fluctuate between US$60 and more than US$70 a barrel in the next few months on demand from the US and China.

Polaris Research estimates that this year's crude oil cost should average around US$65 per barrel, slightly below last year's NT$66.25, Liang said.

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