The nation’s consumer price index (CPI) shrank 0.81 percent annually last month, marking the seventh consecutive month in negative territory on falling fuel prices and travel spending amid the economic slump, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday.
However, the contraction was still a significant improvement over the year-on-year decline of 2.32 percent reported in July, easing worries about looming deflation over the past several months as consumers delayed spending on travel and other nonessential expenses amid the rising jobless rate and falling wages.
Fuel prices have also hovered at a low level compared with a sharp increase last year.
“The decline was slower than my expectation of minus 1.4 percent,” said Cheng Cheng-mount (鄭貞茂), head economist at Citigroup Taiwan Inc. “This indicates consumer prices are stabilizing, which also means the nation’s central bank has no reason to boost key interest rates before the end of the year.”
The central bank may leave its benchmark interest rates unchanged at its quarterly meeting later this month after ending seven consecutive cuts in June in response to sings of gradual economic recovery.
The discount rate stands at a record low of 1.25 percent.
The core CPI, which excludes vegetables, fruit and fuel factors, slipped for the third month in a row, marking the second-biggest annual decline at 0.78 percent. It saw a record drop in July, DGBAS statistics showed.
“We are not worried about deflation now as the contraction has narrowed ... We expect the CPI to return to the positive side in the first quarter of 2010, though the recovery will be slow,” DGBAS section chief Wu Chao-ming (吳昭明) told a press briefing.
There are early signs of a pickup in the wholesale price index (WPI), which could increase the CPI once manufacturers pass higher costs on to consumers, Wu said.
Prices for select industrial raw materials including precious metals such as silver increased last month, implying that the overall economy is recovering, he said.
The drop in the WPI also slowed last month to a contraction of 11.24 percent year-on-year after a record fall of 13.97 percent in July.
For the full year, the CPI is expected to drop 0.68 percent from last year and prices may rise moderately at an annual rate of 0.87 percent next year, the DGBAS said.
In other words, Wu said, “there is no inflation risk on the horizon.”
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