Tue, Jul 07, 2009 - Page 12 News List

Inflation drops by 40-year record

DEFLATIONARY PRESSURE: The Consumer Price Index dropped by 1.97 percent year-on-year last month because of a high base caused by record fuel costs last year

By Crystal Hsu  /  STAFF REPORTER

The nation’s inflation rate dropped by the most in nearly 40 years last month, while the wholesale price index contracted by the biggest amount since records began, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday.

The Consumer Price Index (CPI) shed 1.97 percent year-on-year last month, the sharpest decline since 1970, DGBAS section chief Wu Chao-ming (吳昭明) told a media briefing.

Wu attributed the drop primarily to a high base last year when fuel costs hit a record high of US$147 a barrel in July.

“Over all, commodity prices remained rather stable in June,” Wu said. “A total of 212 items reported modest price hikes, 197 items saw their costs decrease and 15 items maintained the same level.”

Food costs shrank 1.64 percent, led by a sharp decline of 12.81 percent in fruit prices because of ample supply, the DGBAS report said.

Clothing prices contracted 3.08 percent as retailers offered discounts to promote sales, Wu said.

The reading reaffirmed deflationary pressure that is expected to persist for the remainder of this year as consumers cut spending to cope with economic woes, the statistics official said.

The core CPI, used to measure long-term inflation after excluding energy and other volatile commodity costs, sank 0.3 percent from the previous month, the report said.

However, Wu said that the trend should not be cause for concern, adding that consumer prices climbed 0.43 percent after seasonal adjustments.

Transportation prices rose 1.25 percent, while housing costs increased 0.95 percent after electricity and fuel costs advanced 13.45 percent and 6.93 percent respectively, Wu said.

However, retailers would hesitate to hike prices to avoid alienating consumers, he said.

Cheng Cheng-mount (鄭貞茂), head economist at Citigroup Taiwan Inc, said commodity prices would remain stable this year and during the first half of next year in light of the sluggish economy.

“Weak economic activity will limit the room for price adjustments,” Cheng said by telephone.

On the other hand, excess capital worldwide renders sustained price falls unlikely, as seen in the rallies in fuel costs and equity markets, the economist said.

Meanwhile, the wholesale price index dropped by an unprecedented 13.62 percent from a year earlier, led by significant price declines in primary metal, chemical and oil products, the report said. The statistics agency said the high base effect accounted for the decline.

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