Consumer prices fall for first time in three months

Taiwan consumer prices rose slightly in March from a year ago largely due to higher prices in alcohol and tobacco after the nation's entry into the WTO, official data showed yesterday.

The March consumer price index (CPI) stood at 102.98 points (given the 1996 benchmark of 100), up 0.02 percent year-on-year, said the Directorate General of Budget, Accounting and Statistics (DGBAS).

But the figure was 1.64 percent lower from the previous month as certain service charges fell following the Lunar New Year holidays, it said in a statement.

Taiwan's economy probably grew 0.5 percent last quarter from a year ago, ending the worst recession on record, as electronics exports slowed their decline and unemployment snapped a 16-month gain, the government estimates. Still, consumer demand -- which makes up two-thirds of total spending -- may lag, economists said.

"Retailers are still reducing prices to stimulate demand," said Joanne Yang, an economist at First Global Investment Trust Co (元大證券投信). "Looking at real prices, we're not seeing clear momentum for a domestic recovery yet." While demand for Taiwan-made electronics is rebounding, traditional industries such as textiles and chemicals face tougher competition from Chinese imports after the island joined the WTO on Jan. 1, limiting job creation and capping consumer demand. The island of 23 million people also has about 1.2 million excess homes, keeping a lid on housing costs.

Tame inflation allowed Taiwan's central bank to cut interest rates 12 times between December 2000 and December 2001 to spur domestic spending and stem a recession. The bank left its key rate unchanged at its last meeting on March 28, and economists polled by Bloomberg News expect a rate increase as soon as June.

The cost of food and drinks, which makes up about a quarter of the consumer price index, fell 0.7 percent in March from February, according to today's report from the Directorate General of Budget, Accounting and Statistics. Clothing prices fell 1.1 percent.

Housing rentals, which make up about a fifth of the index, fell 0.1 percent. Gas, electricity and water costs also declined 0.1 percent. The government expects consumer prices to rise 0.4 percent for all of 2002.

Meanwhile, the wholesale price index fell 0.59 percent in March from a year earlier to 95.26 (also given the 1996 benchmark of 100) but was up 1.05 percent from a month earlier, the DGBAS added.

In the three months to March, the CPI fell 0.09 percent and the WPI was down 2.08 percent from a year earlier, it said.