Sat, Dec 06, 2008 - Page 12 News List

Inflation slows to 1.88% in November

ECONOMIC WORRIESDespite decelerating growth in consumer prices and a drop in wholesale prices last month, the DGBAS said that deflation was not a concern

By Crystal Hsu  /  STAFF REPORTER

Inflationary pressures slackened further last month, with the growth in the consumer price index (CPI) decelerating to 1.88 percent and the wholesale price index (WPI) posting its first decline in three years, thanks to falling fuel and raw material prices, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday.

With inflation subsiding, economists said the central bank would have more room to cut interest rates when it meets next week to help spur economic growth.

Consumer prices, the government’s foremost worry in July, have weakened for four consecutive months and returned to norma levels, DGBAS section chief Wu Chao-ming (吳昭明) told a media briefing.

“The CPI gained 1.88 percent year-on-year in November, the lowest since September 2007,” Wu said. “However, the index declined 1.08 percent compared with October, owing to the continued drop in oil and raw material prices, although domestic food costs remained relatively high.”

Food prices last month rose 6.94 percent from a year ago, with cooking oil topping the price hikes at 30.42 percent, followed by vegetables, fish and meat products, which gained 15.1 percent, 13.3 percent and 10.25 percent respectively, the DGBAS report showed.

For the first 11 months of the year, the CPI rose 3.73 percent, slightly higher than the 3.64 percent forecast for the entire year, the report said.

Core CPI, which is used to track long-term inflation as the index excludes energy, fruit and vegetable prices, picked up 3.16 percent, the report said.

For the first time in 36 months, the WPI took a downturn, falling 4.95 percent last month compared with a year ago, the report showed.

However, Wu said it may take a while for wholesalers and retailers to reflect the drop in prices.

The statistics official dismissed concerns about deflation, saying the CPI is forecast to rise 0.37 percent next year, adding that the IMF defines deflation as consumer prices declining for two years.

Liang Kuo-yuan (梁國源), president of Polaris Research Institute (寶華綜合經濟研究院), agreed that it was too early to worry about deflation.

“Fighting recession will continue to top the government’s agenda,” Liang said by telephone. “Deflation happens when recession is severe and lasts long enough.”

While the economy may currently be lackluster, it is forecast to pick up pace in the second quarter of next year — although the upturn may be delayed, Liang said.

The central bank may have to implement more interest rate cuts to facilitate the recovery, he said.

Wang Lee-rong (王儷容), a researcher at Chung-Hua Institution for Economic Research (CIER, 中經院), agreed.

Wang forecast a rate cut of 25 basis points, driving the discount rate down to 2.5 percent.

But Wang said the government should watch out for signs of deflation. CIER yesterday said consumer price may contract 0.95 percent next year.

“Consumers will delay spending if they expect prices to fall, rendering the government’s campaign to stimulate domestic demand futile,” Wang said.

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