The nation’s consumer price index (CPI) fell by 1.31 percent last month from a year ago, the biggest contraction since March 2003, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday, citing deteriorating economic conditions and falling demand after the end of the Lunar New Year holiday.
Last month’s CPI fell 1.51 percent from January, mainly because vegetable and fruit prices fell as a result of the harvest season, and winter clothing went on sale. Food prices fell 2.23 percent, while clothing prices dipped 3.8 percent.
“On an annual basis, last month’s CPI fell 1.31 percent, marking the biggest drop in nearly six years, because of a higher base last year when the Lunar New Year holiday fell in February, whereas the holiday was in January this year,” DGBAS section chief Wu Chao-ming (吳昭明) told a media briefing.
Wu said it was more instructive to look at average CPI for January and February combined, which rose 0.08 percent.
Core CPI, which excludes volatile food and energy prices, went up 0.43 percent last month from a year ago, the report said.
The wholesale price index (WPI) dropped 9.04 percent last month from a year ago, as international agricultural and industrial commodities prices continued to plunge, it said.
Wu said the DGBAS expected CPI to fall 0.82 percent this year from last year, adding that it would decline in all four quarters, with the third quarter seeing the biggest drop of 1.76 percent. WPI is estimated to contract 6.36 percent this year, he said.
Wu said deflationary pressure was slowly increasing because the fall in prices was mostly caused by weakening demand. However, the IMF defines deflation as a general decline in prices for two consecutive years.
The rising deflationary pressure “will have a negative impact on the nation’s economy as consumers expect prices to drop further,” Wu said. “With the nation’s economy falling into recession, falling prices are not a good thing.”
Citigroup Taiwan chief economist Cheng Cheng-mount (鄭貞茂) said the nation’s CPI could continue to drop in the future. WPI, however, would likely rise in the next few months because of the stability of energy prices and the depreciation of the New Taiwan dollar against the greenback.
“Overall, the nation’s CPI will see a mild drop this year,” said Cheng, who predicted that this would allow the central bank to focus more on economic growth and that it would cut the rediscount rate by another 25 basis points to 1 percent on March 26.
Citigroup believes that will be the bank’s last rate cut this year, he said.
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