Thu, Aug 06, 2009 - Page 12 News List

July consumer prices contracted 2.33%

DEFLATION? Despite the downward trend in the consumer price index, experts said last month’s drop was caused largely by a high base last year from soaring oil prices

By Crystal Hsu  /  STAFF REPORTER

The consumer price index (CPI) last month contracted by its steepest pace since 1970, dropping 2.33 percent year-on-year, as the economic downturn continued to curb demand and commodity prices, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday.

The wholesale price index also shrank by a record 14.11 percent — its biggest fall since the government began monitoring the index in 1952 — as basic metals, chemicals and energy prices continued their downward correction, DGBAS section chief Wu Chao-ming (吳昭明) told a media briefing.

With deflationary pressure rising, “the prospect of a positive CPI reading is slim for the rest of the year in light of current economic conditions,” he said.

It was the sixth consecutive month of decline for the CPI, driven largely by the 21.3 percent drop in fuel prices from last year, the DGBAS report showed.

Wu linked the decline in part to a high base in July last year, when crude oil hit US$147 a barrel. Oil currently trades around US$70 a barrel.

Food prices shed 2.65 percent, led by a 15.57 percent slump in fruit prices, followed by an 8.83 percent decline in vegetable prices, the report said. Entertainment prices also dipped 2.52 percent as travel agencies and consumer electronics retailers offered discounts to boost sales, it added.

Cheng Cheng-mount (鄭貞茂), head economist at Citigroup Taiwan Inc, said the inflation data were in line with market expectations of a 2.3 percent decline.

“They affirmed a general spending constraint on the part of consumers to cope with the recession,” Cheng said by telephone.

Core CPI, used to track long-term inflation after excluding energy and other volatile commodity prices, fell 0.93 percent for the second month in a row last month after gaining for 28 straight months, the report said.

For the first seven months, consumer prices retreated 0.71 percent year-on-year, while wholesale prices subsided 11.75 percent, the report said.

Despite a substantial fall in consumer prices last month, the “Taiwanese economy is not at the brink of entering a deflationary spiral, and price pressures will resurface once the domestic economy regains strength,” Tine Olsen, an economist at Moody’s Economy.com based in Sydney, said in a statement yesterday, attributing the decline to a higher base last year.

ADDITIONAL REPORTING BY KEVIN CHEN

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