Plummeting crude oil prices might push inflation to the brink of falling into the negative this year, with the consumer price index (CPI) likely logging a decline for last month if the nation’s statistics agency factors in an electricity rebate, Australia and New Zealand Banking Group Ltd (ANZ) said yesterday.
However, ANZ raised its GDP growth forecast for Taiwan this year from 3.7 percent to 4.2 percent, as cheaper oil prices mean lower import costs and a larger trade surplus.
“Given the ongoing tumble in oil prices, Taiwan’s CPI for last month is expected to contract 0.8 percent on a one-off electricity rebate and falling fuel and gas prices,” Hong Kong-based ANZ economist Raymond Yeung (楊宇霆) said in a report.
This would be the first genuine negative CPI inflation since the global financial crisis in 2008, excluding contractions due to holiday seasons in previous years, the economist said.
The Directorate-General of Budget, Accounting and Statistics is due to unveil last month’s inflationary reading tomorrow. As crude oil prices have yet to show signs of stabilization and Taiwan imports more than 90 percent of its oil, the international banking group slashed its CPI forecast for Taiwan from 1 percent to 0.1 percent.
The estimate assumes that oil prices will bounce back to US$60 a barrel, the report said.
Taiwan might save NT$155 billion (US$4.9 billion) from cheaper oil prices this quarter alone, ANZ projected.
Netting the potential decline in petrochemical exports and excluding indirect benefits from improved global growth, the direct gain amounts to an increase of 0.6 percent in GDP growth this year, ANZ said.
The zero inflation and strong growth scenario would allow the central bank to remain accommodative, ANZ said.
While the monetary policymaker would still anchor its rate movements to future actions by the US Federal Reserve, the risk is clearly tilted toward holding a zero inflation environment, ANZ said.
“As such, we now push back the timing of rate hikes to March next year from September of this year,” Yeung said.
The statistics agency is expected to revise its GDP and CPI forecasts — currently estimated at 3.5 percent and 0.91 percent respectively — when it updates fourth-quarter growth figures, the economist said.
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