Consumer prices drop 0.1 percent on weak demand

Consumer prices fell in May for a second month, leaving the central bank room to lower interest rates further to boost sagging consumer demand.

The consumer price index fell 0.1 percent from a month earlier, seasonally adjusted, after falling 0.1 percent in April, the Directorate General of Budget, Accounting and Statistics (主計處) said. From a year earlier, prices fell 0.2 percent.

A slowing economy is holding Taiwan's consumer prices in check. The economy grew at its slowest pace in 26 years in the first quarter, and record unemployment has damped domestic spending.

"There's no risk of inflation, so the central bank can be even more relaxed with its monetary policy," said Matt Yeh, an economist at Taiyu Securities Investment Trust Co (台育證券投信). "There's a good chance it will lower interest rates again." The bank cut its key interest rate six times since December to boost economic growth battered by tumbling exports, falling private consumption and sagging bank lending.

The economy grew 1.1 percent from a year earlier in the first quarter, slowing from the 4.1 percent pace in the fourth quarter as exports and private investment slumped. The government cut its growth forecast for the year to 4.0 percent from 5.3 percent.

Clothing prices fell 0.5 percent from April as retailers offered discounts to boost sales. Food prices, which make up about a quarter of the index, rose 0.2 percent.

The wholesale price index fell 0.28 percent from a month earlier and dropped 1.16 percent from a year earlier.