Consumer prices fell last month for a fourth month in a row as retailers cut prices to attract customers during the worst economic slump in more than a quarter-century. This trend may lead to more interest-rate cuts.
The consumer price index (CPI) dropped 1.69 percent last month, extending a revised 1.14 percent year-on-year decline in November, according to the Directorate General of Budget, Accounting and Statistics (DGBAS). The December drop was steeper than the 0.41 percent decline the market had expected.
"More than 60 percent of the decline [for last month] was accounted for by year-on-year falls in vegetable and fruit prices, as they were adversely affected by a typhoon [in December 2000]," said DGBAS bureau of statistics director Chen Chang-hsiung (
Last month's CPI was also 1.18 percent lower from the previous month mainly due to a higher supply of fruit and vegetables and discount offers by department stores, the DGBAS said.
Despite the steep falls, Chen shrugged off concerns over the possibility of the country entering a deflationary period as it continued to enjoy relatively stable consumer prices.
"Taiwan is expected to report a 1.28 percent increase in private consumption for 2001, with data for the fourth quarter yet to be finalized," he said.
The DGBAS has yet to determine the impact on consumer prices of the country's entry into the WTO, which is likely to be felt in the coming months, Chen said.
Consumers are shopping less as record-high unemployment and a shrinking economy dampen their spending power. The economy, which contracted 4.21 percent in the third quarter from a year earlier, probably had its first full-year contraction on record last year.
"Consumer sentiment remains poor and will stay that way well into the year," said Daryl Goh, an economist at SG Securities (HK) Ltd. "The central bank will continue to maintain its loose monetary stance even as global conditions improve."
Tame inflation has allowed the nation's central bank to slash interest rates more than two-and-a-half percentage points in the past year as it tries to revive growth. The bank last trimmed rates by an eighth of a percentage point on Dec. 27, bringing the key rate to a record-low 2.125 percent.
For all of last year, consumer prices were unchanged -- the first year since 1985 that they haven't risen. Food costs, which make up about a quarter of the CPI, fell 4.8 percent last month from November, without adjusting for seasonal changes, DGBAS said.
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