Taiwan inflation drops below key threshold, easing rate concerns

TAIWAN’S inflation rate fell below the central bank’s 2 per cent threshold last month, easing pressure on the central bank to raise borrowing costs again at its next meeting in June. 

Consumer prices rose 1.95 per cent in the 12 months through April, the statistics bureau said on Tuesday (May 7). That’s down from 2.14 per cent in March and below the 2.2 per cent forecast in a Bloomberg survey of economists. Officials cited significant declines in the prices of eggs, vegetables and transport fares among the main reasons.

Core inflation, which excludes some volatile food and energy prices, also slowed to 1.81 per cent from 2.13 per cent in March. 

“This reading suggests underlying inflationary pressure has subsided,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group. “This should offer a comfort to the central bank which is currently inflation focused. If core CPI stays below 2 per cent in May, they won’t need to deliver another surprising hike in June.”

Inflation is likely to be around 2 per cent in May, while core inflation is set to remain around 1.8 per cent, the statistics bureau’s Tsao Chih-hung said at a briefing in Taipei on Tuesday.

Taiwan’s inflation data has been the focus of intense scrutiny since the central bank caught economists and investors off guard by raising its benchmark interest rate to 2 per cent in March. 

Elevated prices have been a sore point for the public and a concern for officials since 2021. While mild by international standards, inflation has been above 2 per cent – the upper boundary of the central bank’s comfort zone – for much of that time. 

Tuesday’s data may have dampened expectations for a June rate hike, but it doesn’t spell the end of inflation concerns just yet. Taiwan raised electricity tariffs starting from April in an effort to curb losses at state-owned utility Taiwan Power. 

That hike didn’t have much impact on April’s data but will gradually affect prices over the coming months, according to Tsao. 

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“The data is a small relief for the central bank, but it will take time to assess the second-round impact of the power tariff hike,” said Société Générale economist Michelle Lam. She said the bank likely won’t raise rates next month, adding that “we should remain cautious over a re-acceleration in inflation momentum.” BLOOMBERG