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Higher food and energy prices bump up inflation

The consumer price index (CPI) increased 3.89 percent last month from the year earlier to 104.26, its highest level since December, as a result of increases in food and fuel prices, the Directorate General of Budget, Accounting and Statistics (DGBAS) said yesterday.

Food prices climbed 9.76 percent year-on-year last month, after rising 5.28 percent in January. Fish and shellfish were up 7.44 percent, while vegetables rose 9.45 percent, mainly because of the low temperatures last month.

"Vegetable prices dropped 30.06 percent year-on-year in January owing to abundant supply. However, the lack of availability caused by the low temperatures last month and a rise in demand during the Lunar New Year period resulted in a surge in vegetable prices," DGBAS section chief Wu Chao-ming (吳昭明) said.

The low temperatures and rising corn prices also resulted in a 32.68 percent year-on-year increase in egg prices last month, while fruit prices increased by 20.27 percent year-on-year.

Core CPI, excluding food and fuel prices, rose 2.65 percent last month from the same period a year ago, making it the fifth consecutive month that core CPI exceeded 2 percent.

OPEC's average price for crude oil increased 78.8 percent from US$50.80 per barrel in January last year to US$90.80 last month. The 17.3 percent rise in the domestic 95-octane unleaded gasoline price therefore did not reflect the global trend, Wu said.

Meanwhile, the wholesale price index last month rose 8.47 percent from a year ago, mainly because of the rise in the price of crude oil, as well as higher natural gas, coal and metal prices.

DGBAS also said that the import price index had risen 18.99 percent year-on-year last month, its highest level since November 1980.

"While the CPI will remain as high as 3 percent in the first half of this year, the average CPI for the whole year will likely come in at 2 percent," Wu said.

The continuous rise in headline inflation and core CPI will continue to be the central bank's main concern, Grace Ng (吳向紅), an economist at JPMorgan Chase & Co in Hong Kong, said in an e-mail to the Taipei Times yesterday.

JPMorgan predicted a 3.1 percent rise in headline CPI reading.

"In order to contain general inflation expectations, the central bank may consider raising key policy rates once more by 12.5 basis points during its quarterly monetary policy meeting" on March 27, Ng wrote.

The central bank has raised its benchmark rates for 14 consecutive quarters since October 2004 to stem inflationary pressure, bringing the rediscount rate to 3.375 percent.

Ng said that both the wholesale and import price indices eased modestly last month, reflecting the appreciation of the NT dollar against the greenback.

With regard to the latest figures, Deutsche Bank said it saw further upside risk to Taiwan's inflation outlook, but the central bank may adopt a "wait and watch policy," Deutsche Bank economist Juliana Lee in Hong Kong said in a note yesterday.

Moreover, given the weaker external demand and easing global inflation expectations, the central bank may cut rates twice in the second half of the year, Lee said.
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