Wednesday, August 6, 2008

Taiwan Inflation Hits New High

The Directorate General of Budget, Accounting and Statistics (DGBAS) released economic performance data yesterday, reporting that Taiwan's inflation rate for July is the highest in more than a decade. The consumer price index (CPI) went up almost 6% in July, and was accompanied by a marked rise in certain categories of the wholesale price index (WPI).

Compared with other economies, it's not too bad and perhaps to be expected with the rise in oil prices and the KMT's policies of lifting the cap, albeit limited, on gas and electricity prices.

Regardless, the KMT went to great lengths to criticize the DPP for the island's economic performance starting back in 2001 - the first year Taiwan experienced a negative GDP growth in history. And as should be expected, what comes around goes around. But what's missed is that Taiwan, highly dependent on export for sustained economic growth, is highly responsive to economic fluctuations elsewhere in the world, especially the U.S. and increasingly China. Regardless, here's the whole DGBAS article:

Led by a 13.61 percent hike in food prices, Taiwan's consumer price index (CPI) rose 5.92 percent year-on-year in July to 106.88, the highest since October 1994, the Directorate General of Budget, Accounting and Statistics (DGBAS) said Tuesday.

In its monthly CPI report, the DGBAS indicated that the country's inflation rate, core CPI, and wholesale price index (WPI) had all hit the highest levels in recent years, mainly due to two storms and rising domestic fuel and electricity prices.

"The CPI increase in July was the highest since October 1994," said Chao-Ming Wu, a DGBAS section chief, at a news conference Tuesday. He noted that the inflation rate in September 1994 was 6.69 percent.

Wu said the 13.61 percent hike in food prices represented the largest rise of any category in the index's basket of goods, as the prices of cooking oil, fruits, and meats rose by 42.02 percent, 25.52 percent and 24.76 percent year-on-year, respectively.

"Food prices in July were responsible, for the most part, for the inflation, and represented 3.48 percent of the overall index," he said.

Wu hinted at the possibility that food prices might fall in the coming months, as international grain prices have dropped by nearly 40 percent in the last half year.

Domestic transportation costs also increased considerably, with the transportation index rising 6.80 percent year-on-year, representing 0.97 percent of the overall CPI growth rate, according to the report.

"This increase has to do with gasoline prices, which were hiked by 1.5 percent in the beginning of July," Wu said, adding that generally fuel prices rose by 23.26 percent, the biggest jump in the transportation category.

The core CPI, which excludes the prices of energy, fresh vegetables, fruit, and seafood, also rose by 4.06 percent year-on-year, the highest since March 1996.

When asked if the annual inflation rate is likely to increase, Wu declined to speculate on the possibility, saying the bureau will need to further evaluate the situation before adjusting its forecast of 3.29 percent made in May.

The growth rate of consumer prices was 4.18 percent for the period January to July this year, leaving a slim possibility for the annual index to drop to the level of the DGBAS May forecast.
Wu said that because of the two typhoons that caused severe damage to the island's agriculture sector in July, the CPI had peaked in summer. He said that the growth rate could decline in September and October.

Inflationary pressure could be seen in the WPI for imported commodities, which rose by 11.49 percent year-on-year, he said.

"Excluding the impact of the Taiwan dollar's appreciation, the WPI for imported commodities, valued in U.S. dollars, soared by 26.50 percent in June, the highest since March 1980," Wu said. The the index rose 26.90 percent in February 1980 because of the second oil crisis, he added.

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