The central bank should raise interest rates faster in the coming board meetings this year to control rising inflationary pressure that could peak in the third quarter, economists said.
The consumer price index (CPI) increased 1.29 percent from a year earlier for the first four months of this year, an indication that Taiwan’s inflation remained steady among Asian emerging markets, the Directorate-General of Budget, Accounting and Statistics (DGBAS) reported last week.
However, Cheng Cheng-mount (鄭貞茂), chief economist of Citigroup in Taipei, said the inflationary pressure could surge in the second half of this year amid rising global demand for agricultural products and continuing quantitative easing in the US.
“Currently, the central bank’s pace of rate hiking is still slower than the rising pace of commodity prices,” Cheng told a media briefing on Thursday.
The US is likely to maintain its quantitative easing for a while and will therefore raise inflationary pressure in Asian markets, including Taiwan, he said.
“The central bank should increase the policy interest rate by at least 12.5 basis points for each board meeting this year. If the United States were to hike its interest rate, Taiwan should even speed up to raise the rate by 25 basis points,” Cheng said.
Chen Miao (陳淼), director of the macroeconomic forecasting center at the Taiwan Institute of Economic Research (TIER, 台灣經濟研究院), said Taiwan’s inflationary pressure could continue to next year on high crude oil prices.
The nation’s average retail price for 95 octane unleaded gasoline surged to a two-and-a-half year high last month, data showed.
“The prices of crude oil will remain high on rising demand, bringing up inflation, but the appreciation of the NT dollar could offset some pressure,” Chen told a forum on Thursday.
However, the growth of the wholesale price index (WPI) should be carefully monitored, as companies could shift the additional costs to consumers amid rising wholesale prices, Chen said.
In the first four months of this year, the nation’s WPI increased 4.04 percent from a year earlier, DGBAS data showed.
Tony Phoo (符銘財), a Taipei-based economist at Standard Chartered Bank, said the nation’s inflation could peak in the third quarter, because typhoons could drive up vegetable prices, further raising the CPI.
“Relatively stable weather conditions kept overall food prices steady last year, but they also heightened the upside risk for the typhoon season this year,” Phoo said.
Nonetheless, because the nation’s inflation remains mild compared with regional peers, the central bank may balance the inflation risk by maintaining its pace of interest rate hikes at 12.5 basis points in every board meeting this year, as well as the foreign exchange policy, Phoo said.
JPMorgan forecast the central bank would raise rates by 12.5 basis points each board meeting, while Goldman Sachs predicted the central bank would increase rates by 12.5 basis points at its next two meetings and by 25 basis points in December.