Contrary to market forecasts, inflation eased last month as the consumer price index (CPI) edged up 3.71 percent year-on-year, down from 3.85 percent year-on-year growth in April, the nation’s top statistics agency said yesterday.
Disclosing the latest CPI figures at a news briefing in Taipei, the Directorate General of Budget, Accounting and Statistics (DGBAS) attributed the trend to a slowdown in international grain prices and the deferred effect of the recent hikes in domestic fuel prices.
“This was a surprising outcome, coming out lower than our [own] as well as market forecasts of 4 percent [for last month] and 4.1 percent [for April] respectively,” Deutsche Bank’s economics research unit said in an e-mailed statement yesterday.
Sherman Chan (陳穎嘉), a Sydney-based economist at Moody’s Economy.com, said inflation remained a concern in Taiwan, despite the CPI having lost momentum for the second straight month.
“There are increasing upward pressures on CPI growth. In light of the recent hike in gasoline and diesel prices and an expected increase in electricity prices in July, it is unlikely that inflation will cool in the coming months,” she wrote in a report yesterday.
The Cabinet on May 28 ended a six-month freeze on oil product prices to reflect rising crude costs on the international market and stem further losses at the state-run CPC Corp, Taiwan (台灣中油).
“The hikes in oil product prices have yet to be fully assimilated, as the adjustments took place late in May,” DGBAS section chief Wu Chao-ming (吳昭明) said, adding that it would be better to judge their impact on the CPI at the end of this month.
Still, Wu conceded that the CPI remained relatively high, though he refused to equate the number to inflation, noting that not all goods and services registered price hikes last month.
Food prices posed the sharpest year-on-year increase of 9.29 percent as a result of rising grain prices, Wu said, adding that prices for bananas soared 160 percent, while cooking oil rose 68 percent and papayas gained 67 percent.
Fruit growers remain unable to recover from last year’s typhoon damage, he said.
Core CPI, which excludes energy and water product prices, saw a 3.1 percent year-on-year gain last month, the highest since February 1999, the DGBAS report said.
“The core CPI growth rate has been expanding since the second half of last year, and has now reached a figure that deserves extra attention,” Wu said.
The wholesale price index climbed 7.72 percent from a year ago, up from 6.18 percent in April.
Wu said that DGBAS put the CPI growth for this year at 3.3 percent, although it was too early to judge the full impact of the upcoming adjustment on electricity rates.
The Cabinet has said it will raise electricity rates next month and in October to cushion the effects of rising fuel costs, but has not made known its final rate schedule.
Two Citigroup economists said yesterday that the good CPI reading for last month might reflect temporary factors such as discount sales during Mother’s Day, but it could also indicate that weak consumer spending has cut the pricing power of companies.
Moreover, “continuously climbing core CPI suggests that more firms are pressured to adjust their prices despite weak demand,” Citigroup Investment Research economists Cheng Cheng-mount (鄭貞茂) and Tina Liao wrote in a research note after the release of the latest inflation data.
In view of recent rain damage to some major vegetable production areas, Cheng and Liao forecast CPI growth would exceed 4 percent this month.
As the economy appears capable of coping with a tighter monetary policy, both Moody’s and Citigroup economists said the central bank was likely to raise its benchmark interest rates (discount rates) by a more aggressive 25 basis points at its quarterly board meeting on June 26.
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