The central bank is expected to leave its key interest rates unchanged at a quarterly policymaking meeting scheduled for March 21 due to a likely increase in electricity costs, which could add to inflationary pressures, experts said last week.
While the US Federal Reserve’s interest rate hike cycle has ended, and the market widely anticipates it would start cutting rates later this year, Taiwan’s central bank is expected to maintain its tightening monetary policy for the moment, they added.
Taiwan Institute of Economic Research (TIER, 台灣經濟研究院) president Chang Chien-yi (張建一), who is also a central bank board member, said that if electricity rates are hiked as the market expects, inflationary pressure would grow accordingly.
Photographer: I-Hwa Cheng, Bloomberg
The Ministry of Economic Affairs is expected to convene a power rate evaluation meeting later this month to discuss electricity rates, while state-owned Taiwan Power Co (台電) continues to incur heavy losses. The ministry has strongly hinted that power tariffs would be raised starting from next month to make up for the losses.
Once power rates increase, the business sector is expected to see operating expenses rise, with restaurants and small food stalls likely to raise prices, raising the cost of dining out and eventually pushing up inflation, Chang said.
“I do not rule out the possibility that local inflation will hit 2 percent this year,” he added.
On Thursday, the Directorate-General of Budget, Accounting and Statistics raised its forecast for the nation’s consumer price index (CPI) to grow 0.21 percentage points to 1.85 percent from its November last year estimate, which is still below the 2 percent alert set by the central bank.
Expressing concerns over inflation, E.Sun Financial Holding Co (玉山金控) chairman Joseph Huang (黃男州) said that with a 4 percent wage increase for civil servants and an improvement in enterprises’ profitability, there is upward pressure on local consumer prices.
Echoing Chang and Huang, TIER economist Wu Meng-tao (吳孟道) said the central bank is likely to raise its forecast for CPI growth this year at this month’s meeting to bring it closer to 2 percent or even above the alert level, an increase from a forecast of 1.89 percent made in December last year.
“There is no rush for the central bank to adjust its monetary policy” because it needs more data to assess local inflation, Wu said.
Separately, the Japanese government is discussing officially stating that the country’s economy has overcome deflation, Kyodo News reported on Saturday, citing several unidentified people familiar with the matter.
The government would consider making the statement after accounting for this year’s wage negotiations to check if pay is increasing in accordance with rising prices, Kyodo reported.
The proposal includes Japanese Prime Minister Fumio Kishida and other members of the Cabinet publicly saying that the country has exited deflation at meetings and news conferences, as well as stating it in monthly economic reports, it said.
Markets are keeping a close watch on the timing of the Bank of Japan’s (BOJ) next interest rate increase, which would be the first since 2007.
However, BOJ Governor Kazuo Ueda recently said that the price target was not yet in sight.
“We will continue to seek confirmation whether the virtuous cycle between wages and price began to turn,” Ueda said on Thursday after meeting with G20 central bankers and finance chiefs in Sao Paulo, Brazil.
Japan’s benchmark inflation exceeded estimates in January, with consumer prices excluding fresh food rising 2 percent from a year earlier. It was the 22nd straight month in which inflation matched or exceeded the nation’s central bank target.
Inflation figures for last month are likely to show a strong uptick as the effects of subsidies a year ago fades, an outcome that could fuel bets on a BOJ rate hike this month, as the labor market has tightened, keeping pressure on companies to promise solid wage gains in annual pay negotiations that are taking place with labor unions.
The government would factor in the CPI and other major economic data in making a decision, Kyodo reported.
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