Headline inflation and core inflation accelerated last month, with the former showing the biggest increase since September 2012, the Directorate-General of Budget, Accounting and Statistics (DGBAS) reported on Friday.
The headline consumer price index (CPI) rose 3.27 percent last month from a year earlier, and was up 0.31 percent from the previous month, driven mainly by a 24.35 percent increase in vegetable prices due to a cold snap and a low comparison base, a 23 percent surge in egg prices because of increased feeding costs, and 19.2 percent growth in fuel costs as global crude oil prices moved up in response to Russia’s invasion of Ukraine.
Core CPI — which excludes vegetable, fruit and energy prices — advanced 2.47 percent year-on-year last month, and accelerated from a 1.65 percent increase in February, the DGBAS reported. Last month’s increase in core CPI was the largest in more than 13 years, signaling some pass-through of higher energy costs and suggesting that inflationary pressures might not be as transient as officials had claimed — if core inflation continues to stay at the central bank’s 2 percent alert level or higher for the rest of this year.
In the first quarter of the year, headline inflation rose 2.81 percent compared with the same period last year, with commodity prices increasing 3.82 percent and service costs up 16.8 percent annually, while core inflation increased 2.18 percent from one year earlier, DGBAS data showed.
The trajectory of domestic inflation so far suggests that headline inflation should at least stay above 3 percent until the end of the second quarter, and full-year CPI should accordingly exceed the DGBAS’ forecast of 1.93 percent for this year. Last month, central bank forecast headline inflation reached 2.37 percent this year, while the National Development Council predicted that a sharp rise in oil prices, driven by the war in Ukraine, could push annual inflation up to 2.5 percent.
The ongoing COVID-19 lockdown in Shanghai is expected to exacerbate supply chain disruptions and cause further pressure to global inflation. Economists have that said upside risks to inflation also come from global supply chain disruptions and the Shanghai lockdown. Given that Shanghai operates the world’s busiest port in terms of cargo tonnage, this only adds more pressure to port congestion, creates more logistics bottlenecks and keeps the already high wholesale price index (WPI) above normal levels.
The increase in global WPI has been much higher than that of CPI over the past year, as more countries gradually open their economies. However, supplies just could not keep up with a sudden surge in demand. High WPI and supply disruptions inevitably led to higher retail prices and increased consumer inflation worldwide. In Taiwan, the WPI grew 12.38 percent from the previous year in the first quarter, and had increased 9.42 percent for the whole of last year. As long as the WPI continues to trend higher, the CPI in Taiwan and elsewhere in the world would of course remain high.
Headline inflation has stayed above the central bank’s 2 percent threshold for the past eight months, raising the likelihood of the monetary policymaker continuing quarterly rate hikes. Given Taiwan’s small and open economy, and its dependence on international energy and raw materials, appropriate efforts to stabilize prices of imported commodities and raw materials are required to address present inflation concerns. Meanwhile, nimble and flexible monetary and exchange rate policies could also mitigate worsening inflation down the road.
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