CPI declines on cheaper crude oil costs

NO DEFLATION CONCERNS::The core consumer price index, a more reliable gauge of inflation, increased by 0.96 percent last month, confirming gradual inflation

By Crystal Hsu  /  Staff reporter

Thu, Apr 09, 2015 - Page 13

The consumer price index (CPI) declined 0.61 percent last month from the previous year, widening from the 0.2 percent decrease recorded in February, as cheaper oil prices continued to weigh, while food cost increases tapered off, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday.

The government’s inflationary gauge contracted for the third consecutive month and could remain in the negative zone for the coming few months until oil price distortions fade away, economists said.

Fuel costs fell 26.49 percent year-on-year last month, retreating by a double-digit percentage for four consecutive months and dragging the CPI down by 1 percentage point, DGBAS Deputy Director Tsai Yu-tai (蔡鈺泰) told reporters.

Cheaper crude oil prices more than blot out the 1.44 percent increase in food costs that account for 25 percent of the makeup of the CPI, the statistics agency’s report showed.

“Stripping out energy costs, most items registered mild price increases, suggesting healthy consumer activity and no need to worry about deflation,” Tsai said.

The softening increase in food expenses had much to do with normalized demand after the Lunar New Year holiday rather than delayed consumption on expectations of price cuts, he said.

Meat, eggs, vegetables and fishery products all logged price increases of more than 3 percent last month, reflecting healthy demand, the report showed.

However, fruit prices fell 9.14 percent, significantly easing the pace of food cost increases, Tsai said.

Core CPI, a more reliable inflationary reference because it does not include volatile items, posted a 0.96 percent increase last month, confirming mild inflation, Tsai said.

In the first quarter, the CPI contracted 0.59 percent, while core CPI grew 1.12 percent, the report said.

The wholesale price index (WPI), a measure of production costs at firms, decreased 8.55 percent last month, narrowing from the revised 8.73 percent fall in February, the report said, as crude oil prices remained low, but less volatile.

For the first three months, the WPI shrank 8.37 percent, the report said.

Headline CPI is likely to stay in negative territory in the next one to two months, as state-run Taiwan Power Co (台電) plans to cut electricity rates by 7 percent this month, Standard Chartered Bank said.

“However, the CPI contraction in recent months is temporary as the base effect linked to oil prices will taper off later this year,” Taipei-based Standard Chartered economist Tony Phoo (符銘財) said in a note.

Benign inflation will give the central bank room to keep policy rates unchanged for an extended period of time, Phoo said.