Growth in Taiwan’s manufacturing sector “moderated,” but remained in solid territory last month on improving global economic conditions although external demand for electronics eased, according to an HSBC PLC report released yesterday.
The headline Purchase Managers Index (PMI) reached 55.8 points last month, slowing from 59.8 a month earlier, indicating the manufacturing sector was in expansion mode for the fourth consecutive month, the report showed.
“Taiwan’s export growth moderated sharply, but remains solid,” said Donna Kwok (郭浩庄), economist at HSBC Asia. “Escalating input cost pressures are starting to pass though to consumers, which we’ll continue to monitor closely.”
A PMI reading above 50 indicates expansion, while readings below the threshold suggest contraction.
The main drag came from new orders and new export orders as the sub-indexes shed 5.6 and 10 percentage points to 57.2 and 53.2 respectively last month amid the low season for the technology sector, the report said.
Output subsequently eased to 55.1 last month, from 62.4 in January, although the sub-index was still expanding at an above-trend pace.
“With a comfortable margin above the neutral mark, external demand stays firm and the manufacturing sectors activity is still buzzing,” Kwok said.
Against this backdrop, policymakers will pay closer attention to inflation than to growth, the economist said, after input costs jumped to yet another high for the second straight month last month, posting 87.2, from 84.8 one month earlier.
Higher metals and plastics costs were to blame as more than 60 percent of survey respondents flagged a steep increase in input cost inflation, which has risen now for 21 consecutive months, the report said. The faster rise is in line with the recent surge in global commodity prices.
Meanwhile, the pass-through of higher material costs to consumer prices grew more evident, lifting the output price sub-index for the seventh straight months to 60.6 last month, from 56.0 a month earlier, the report indicated.
About 20 respondents attested to the trend, while the remaining 80 percent still found competition tough and opted to absorb input cost increases themselves, Kwok said.
“The absence of real wage inflation is likely the reason that manufacturers continue to bear the burden of higher global commodity prices, thus buffering the transmission of higher global energy prices into the consumer inflation gauge,” she said.
Kwok expects the central bank to hike interest rates by 12.5 basis points at its quarterly board meeting this month before meaningful wage inflation takes place.
The situation, however, may change if political turmoil in the Middle East fails to settle and global oil price speculation continues to push input cost inflation in an upward spiral, the economist said.
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