Inflation strikes 14-year high

The Consumer Price Index (CPI) was 0.66 percent up in July against the previous month, the DGBAS said.

July's annual inflation rate was above forecasts, and the highest since September 1994's 6.69 percent.

"The inflation rate is still too high, so I will expect the Central Bank of China (CBC) to raise rates again in September," said Citigroup Inc. economist Cheng Cheng Mount.

"It needs to raise rates one last time before CPI starts easing in the fourth quarter."

The CBC increased its interest rate to a seven-year high of 3.625 percent on June 26 and ordered lenders to set aside more cash as reserves. Governor Perng Fai-nan said his "first priority" is to contain inflation.

Record fuel and food prices have driven up Asian inflation, raising living costs for consumers and prompting central bankers from India to Indonesia to increase interest rates.

Premier Liu Chao-shiuan said on July 25 that the government will cut income tax rates and provide 450,000 households with payments of NT$5,000 per month to help families whose budgets are being eroded by higher prices.

"Inflation pressures are elevated from high food prices, and fuel-price hikes will push it even higher," Sean Yokota, an economist at UBS AG in Hong Kong, wrote in a report. "However, with activity already beginning to slow, inflationary pressures should start easing late this year. We see just one more interest-rate increase in the pipeline."

President Ma Ying-jeou's policies to scrap tariff caps at government-owned companies have boosted fuel and power costs, while storm damage to more than 27,000 hectares of crops cut fruit and vegetable supplies in July.

Tropical Storm Kalmaegi, which hit Taiwan on July 19, and Typhoon Fung-Wong, on July 27, caused a combined NT$2.28 billion (US$74 million) in agriculture losses, forcing prices of some leaf vegetables up as much as 25 percent.

A 12.6 percent July electricity price hike added to the upward pressure on prices. The increase was the first jump in power costs since 2006.

"Traditionally, July and August food and energy prices are higher because of the typhoons, so we can expect August CPI to be high as well," said Wu Chung-ming, head of the directorate's prices section.

Food prices rose 13.61 percent over the past month against a year earlier, and public transport fares gained 6.8 percent.

Annual core inflation excluding food and energy prices was 4.06 percent up from a year earlier.

Taiwan retail sales declined 0.4 percent in June from a year earlier, the first drop in 17 months, according to a report from the Ministry of Economic Affairs.

CPC Corp., Taiwan's state-owned oil refiner, said on Friday that it will keep prices unchanged and absorb an increase in costs from last month "to help the government share the people's hardship and ease inflation." The refiner raised tariffs in June and July in line with Ma's policy to let prices reflect costs.

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