The nation's inflation rate this year may exceed the 2 percent target set by the government, should the average price for crude oil exceed US$85 for the year, a government official said yesterday.
Thomas Yeh (葉明峰), vice chairman of the Council for Economic Planning and Development (CEPD), made the warning after prices of crude futures hit a record US$100 per barrel on Wednesday.
"If average global oil prices exceed US$85, then the inflation rate target of 2 percent may not hold ... We calculated the target with the premise that crude oil prices remain around US$85 per barrel," Yeh said in a telephone interview.
In a separate interview, an official of the government's statistics department confirmed that the official forecast of a 1.84 percent inflation rate for this year made in November was based on the premise that crude oil prices would stabilize at around US$73.6 per barrel.
"Though volatile fluctuation of oil prices in the third and fourth quarter of 2007 exceeded our expectations, prestigious institutions such as the EIA and the IMF anticipate a slight but steady retreat on crude oil prices after the first quarter of 2008 because of a closing gap or even a surplus of supply for oil over demand," Tsai Yu-tai (
Tsai said that last year's inflation rate -- which is to be announced on Sunday -- is very likely to be adjusted upward due to higher-than-expected oil prices.
The inflation rate for last year was previously forecast at 1.65 percent in November.
The surprising spike in oil prices is largely due to speculation spurred by geopolitical incidents and is unlikely to be long-term, Yeh said.
He said the government is closely monitoring the trend and may adjust its policy on domestic oil prices only if the crude oil prices linger around US$100 for more than six months.
The US Energy Information Administration (EIA) forecast WTI crude oil prices at an average of US$84.83 per barrel this year.
Estimates by the IMF, Citigroup and Lehman Brothers were lower, ranging between US$75 and US$77.
Yeh, citing the EIA statistics released last month, said the demand for crude oil last year averaged 85.78 million barrels per day, while supply averaged 84.86 million.
The institution projected the average of demand and supply at 87.16 million and 87.16 million barrels a day this year, he said.
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