Taiwan records deflation for 1st time in 3 years

TAIPEI - Taiwan recorded a deflation for the first time in three years, as government statistics pointed to a minus-0.79-per cent consumer price index (CPI) growth in August.

The CPI stood at 102.7 in August, according to a report released by the Directorate-General of Budget, Accounting and Statistics (DGBAS) yesterday.

While the August CPI rose 0.12 per cent from July, it dropped 0.79 per cent compared with a year ago, which marks the first year-on-year drop since August 2010.

Between January and August, the CPI grew a mere 0.87 per cent, which is much lower than the 2 per cent cap set by the central bank of Taiwan, indicating consumer prices have stayed fairly stable so far this year.

Factors Contributing to Deflation

Although Tropical Storms Trami and Kong-Rey engulfed Taiwan in August, they did not bring much damage to the island in terms of driving prices up, for they were in Taiwan only for a relatively short period of time, the DGBAS said.

Two storms visited Taiwan in August last year, driving prices up. With a higher base period in 2012, fruit and vegetable prices in August declined from a year ago.

Another reason causing the CPI to drop year-on-year is that many 3C products (computer, communication and consumer electronics) were on sales in August, driving prices down.

The August CPI grew 0.12 per cent month-on-month, because unstable weather had affected agricultural production, driving fruit and vegetable prices up. In addition, the Ghost Festival which involved preparing ritualistic food offerings also contributed to price increases.

However, seasonal clothing sales, price drops in air travel and travel packages partially offset price increases.

MOEA Response

Analysts said CPI may rise in the next few months. The electricity price is set to increase in October, causing concerns that it will drive the CPI higher. The Ministry of Economic Affairs (MOEA) has set up a team to monitor price changes in some important merchandises and commodities.

The MOEA will track price changes more closely in the future, said Vice Economics Minister Cho Shih-chao, adding that the MOEA will invite businesses for coffee in order to better understand changes in consumer prices.

It is the government's responsibility to shield the general public from negative impacts that may result from electricity price increases, Cho said.

CPI of Other Countries

In the period between January and July, the CPI of Japan dropped 0.3 per cent, while the US rose 1.6 per cent, mainland China rose 2.4 per cent, Singapore rose 2.7 per cent, and Hong Kong rose 4.3 per cent.

While Taiwan's CPI rose 0.87 per cent between January and August, South Korea rose 1.3 per cent.

Wholesale Price Index

The WPI in August increased 0.42 per cent from the preceding month, mainly because prices of petroleum and coal products, basic metals, and chemical material went up 1.56 per cent, 0.61 per cent, and 0.58 per cent respectively, but prices of computers, electronic and optical products moved down 0.67 per cent.

The annual change of WPI in August compared with the same month of 2012 was minus 2.85 per cent, mainly because prices of basic metals, machinery and equipment, and electronic parts and components went down 7.71 per cent, 5.59 per cent and 1.98 per cent respectively, while prices of chemical materials advanced 0.85 per cent.

The WPI for domestic sales excluding imports decreased 1.79 per cent, import price index moved down 4.73 per cent and export price index declined 2.03 per cent.