Taiwan's Inflation Likely Accelerated to 14-Year High (Update1)
By Tim Culpan
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Aug. 5 (Bloomberg) -- Taiwan's inflation probably accelerated to a 14-year high in July after the government ended caps on power prices and storms led to an increase in food costs.
Consumer prices rose 5.6 percent from a year earlier, the most since September 1994 and up from June's 4.97 percent gain, according to the median forecast in a Bloomberg News survey of 19 economists. The report is due about 4 p.m. today in Taipei.
New 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 supply in July. Taiwan's Cabinet last month announced subsidies for low-income families among measures to alleviate the impact of rising prices.
``The typhoons and removing price caps are going to keep the numbers high this month,'' said Sean Yokota, an economist at UBS AG in Hong Kong, who predicts one more 12.5 basis point increase in Taiwan's benchmark rate in September. ``As we get into the fourth quarter, you're probably going to see those inflation numbers come off.''
Record fuel and food costs are stoking inflation across Asia, prompting policy makers in India, Indonesia, Taiwan, the Philippines and Thailand to boost borrowing costs even as their economies face fallout from a global slowdown.
Interest Rates
Taiwan's central bank 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.
Citibank Taiwan Ltd. Chief Economist Cheng Cheng-mount last month raised his forecast for the island's inflation to 3.3 percent from 2.8 percent earlier. The statistics bureau on May 29 estimated consumer prices would rise 3.29 percent in 2008.
Tropical Storm Kalmaegi which hit Taiwan on July 19 and Typhoon Fung-Wong on July 27 caused a combined NT$2.28 billion ($74 million) in agriculture losses, forcing prices of some leaf vegetables up as much as 25 percent.
Premier Liu Chao-shiuan on July 25 said the government will cut personal 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.
The Ministry of Finance announced July 29 that it will extend, by six months, exemptions on import taxes on eight types of grains to curb rising prices. A halving of tariffs on five types of wheat-flour and tax-free status for three cornstarch- type commodities will be extended to Feb. 5, it said.
CPC Corp., Taiwan's state-owned oil refiner, said on Aug. 1 it will keep prices unchanged and absorb an increase in costs 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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CPI
Firm YoY%
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Median 5.60%
Average 5.68%
High Forecast 6.31%
Low Forecast 5.30%
Number of Participants 19
Previous 4.97%
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Action Economics 5.50%
ANZ Banking Group 5.33%
Barclays Capital 6.30%
Chinatrust Commercial Bank 5.80%
CIMB GK Securities 5.80%
DBS Group 5.70%
HSBC 5.40%
Ideaglobal 5.80%
ING Bank 5.30%
Japan Center for Intl Finance 5.30%
KGI Securities 5.80%
Mega Securities 5.64%
Morgan Stanley 5.60%
Polaris Securities 6.23%
SinoPac Holdings 6.31%
Standard Chartered Bank 5.50%
Taiwan Securities Investment 5.52%
Thomson IFR 5.40%
UBS 5.60%
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To contact the reporter on this story: Tim Culpan in Taipei at
tculpan1@bloomberg.net.
Last Updated: August 4, 2008 22:29 EDT
