Inflation has become more worrisome as vegetable prices have soared by more than 40 percent after Tropical Storm Lupit over the weekend brought torrential rain to the farms and orchards in southern Taiwan. It will take more than two weeks for vegetable farmers to resume supply, meaning vegetable prices will stay high this month.
Heavy rain already caused vegetable prices to rise nearly 20 percent last month. Together with increases in the prices of meat and eggs, food costs grew by 2.45 percent. The uptick in food prices was the second-largest factor that drove up last month’s consumer price index (CPI), which climbed 1.95 percent year-on-year, a 0.08 percentage point increase from 1.87 percent in June, approaching the central bank’s CPI target of 2 percent.
A spike in transportation and communications costs, up 6.95 percent annually last month, was the most significant reason behind last month’s CPI growth, as higher global crude oil prices led to increases in local fuel prices and airfare of more than 25 percent, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said last week.
The central bank said in June that the inflation risk was low and the CPI uptick was temporary. The monetary policymaker expected inflation to subside in the second half of the year after peaking in the second quarter. The nation’s CPI jumped at an annual pace of 2.14 percent. Although the central bank expects the CPI to climb mildly, it raised the gauge to an increase of 1.6 percent and the core CPI reading to 1.11 percent for the whole of this year, from 1.07 percent and 0.77 percent estimated in March.
The central bank’s comments might aim to calm consumers’ jitters about price increases and avert nascent price speculation, but more signs indicate that inflation might come one step closer to the tipping point and needs to be tackled.
Aside from the rise in imported inflation, the prices of 17 daily necessities closely monitored by the Cabinet — from flour to shampoo — surged 3.01 percent year-on-year last month, the fastest growth in two-and-a-half years, according to the latest statistics from the DGBAS.
The persistent uptrend in wholesale prices is also worth watching. The wholesale price index, a gauge of commercial production costs, rose 11.77 percent last month, outpacing a revised 10.91 percent gain estimated in June due to higher prices for raw material and crude oil prices. That could spell trouble for the CPI in the near future, as retailers and manufactures could pass cost increases on to consumers.
As the nation reopens its economy amid a sharp reduction in COVID-19 infections, travel costs are going up as people are making reservations at hotels, and purchasing airline and train tickets, following nearly three months of soft lockdowns.
A strong New Taiwan dollar has helped ease inflation. The local currency has appreciated 2.39 percent against the US dollar — to NT$27.826 yesterday — since the beginning of this year. As the US Federal Reserve is moving to taper asset purchases earlier than it had planned due to the improving US economy, the US dollar should benefit from the monetary measures and rise against the world’s major currencies. That means the NT dollar might begin to depreciate against the greenback, making imported goods more expensive.
As multiple factors from within and outside the nation are apparently navigating Taiwan’s inflation in an undesired direction, the monetary policymakers should be on their guard against such developments and propose measures to keep inflation in check.
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