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Inflation experiences fastest climb in eight months

Taiwan’s inflation accelerated by the fastest pace in eight months as fuel and food costs climbed, increasing the likelihood that the central bank will continue raising interest rates.

Consumer prices rose 4.97 percent last month from a year earlier, the state statistics bureau said yesterday in Taipei. That was more than the 4.05 percent median estimate in a Bloomberg News survey of 12 economists. Prices rose 3.71 percent in May.

State-run refiner CPC Corp (台灣中油) raised gasoline and diesel prices at the end of May after oil surged, while food costs climbed after heavy rains destroyed crops. The government, which forecasts inflation this year will be the fastest since 1995, last month raised the key rate for the 16th consecutive quarter and ordered banks to set aside more cash as reserves.

“The central bank will raise rates again in September to tame inflation,” said Cheng Cheng-mount (鄭貞茂), chief economist at Citibank Taiwan Ltd in Taipei.

“It may also use other tools, such as increasing reserve requirements, to help control prices,” Cheng said.

Central banks across Asia are grappling with accelerating inflation. India’s rate is the fastest in more than 13 years, Philippine inflation is at a 14-year high and China’s consumer prices rose by the most since 1996 in the first five months.

Policy makers have used rate increases and increased bank reserve requirements, which freeze money that might otherwise fuel price gains.

Fruit prices climbed 27 percent and meat rose 22 percent from a year earlier. Overall, food prices rose 11.89 percent, the largest gain in seven months, after increasing 9.29 percent in May.

Transportation rose 6.4 percent and, within that category, fuel climbed 23.2 percent. Housing was 1.59 percent more expensive.

Core consumer prices — excluding vegetables, fruit, fish and energy — rose 3.70 percent, the biggest gain since March 1996, after climbing 3.23 percent.

“Inflation is a global problem right now — compared to neighboring economies, Taiwan is not doing too bad,” said Wu Chao-Ming (吳昭明), a statistics bureau section chief.

Import prices increased 6.01 percent, while wholesale prices rose 9.86 percent.

Taiwan’s central bank raised its benchmark discount rate on 10-day loans to banks by 12.5 basis points to 3.625 percent last month, a seven-year high. It also told banks to increase the proportion of deposits that they set aside as reserves.

The statistics bureau last month forecast inflation of 3.29 percent for this year, up from a February projection of 1.98 percent.
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