The consumer price index (CPI) fell 0.94 percent year-on-year last month, dragged by cheaper fuel prices and one-off electricity rebates that offset food cost hikes ahead of the Lunar New Year holiday, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said.
The latest inflationary reading represented the sharpest decline in more than five years, raising the specter of deflation going forward, if international crude oil prices fail to stabilize in the near term, analysts said.
“Fuel prices fell 29.52 percent last month, while electricity costs plunged 24,72 percent,” DGBAS Deputy Director Tsai Yu-tai (蔡鈺泰) said, citing causes for the downturn in the CPI reading.
State-run utility Taiwan Power Co (Taipower, 台電) last month passed on cost savings from lower oil prices with a one-off electricity rebate of NT$800 to 12 million households.
The rebate trimmed 0.59 percentage points from the headline CPI, the DGBAS report said.
The CPI after seasonal adjustments declined 0.84 percent last month compared with one month earlier, the report said.
The contraction came even though food prices, which account for 25 percent of the CPI basket, increased 4.45 percent, clothing prices gained 1.15 percent and medical expenses rose 0.44 percent, the report said.
Furthermore, dining costs picked up 3.98 percent.
Rising food and dining costs would significantly weaken the benefits of cheaper fuel prices for ordinary people, Tsai said.
Dining costs constitute 10 percent of the CPI weighting.
The core CPI — which is more reliable in tracking long-term inflationary trends as it excludes volatile items such as vegetable and energy costs — grew 0.64 percent last month, dropping from a revised 1.37 percent in December last year, the report said.
Meanwhile, the wholesale price index, a measure of production costs, fell 7.57 percent last month, thanks to cheaper prices for oil, basic metals and coal as well as the electricity rebate, the report said.
The inflationary gauge is likely to see a rebound this month as the Lunar New Year holiday could boost demand for food, clothing and recreation, Barclays’ Singapore-based economist Leong Wai Ho (梁偉豪) said.
“Services inflation remains relatively brisk amid stronger domestic demand and firming wages, which could continue to support core inflation,” Leong said in a note.
Dachrahn Wu (吳大任), an economics professor at National Central University, expects crude oil prices to stabilize soon and ease deflation risks.
“I don’t believe that oil producers would tolerate below-cost crude prices for long,” Wu said by telephone.
If that is not the case, deflation is inevitable, as Taiwan imports 90 percent of its oil, Wu said.
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