Taiwan’s headline inflation unexpectedly pulled back last month — led by declines in fruit and communications device prices — offsetting gains in fuel, transport and meat prices. The consumer price index (CPI) rose 1.2 percent year-on-year, down from 1.75 percent in February and remaining below the 2 percent alert level for the 11th consecutive month, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said on Wednesday last week. Excluding vegetables and fruits, CPI rose 1.93 percent last month, and was up 1.94 percent if energy is excluded, denoting price stickiness in living expenses such as dining out, rent, utility fees and transport costs, the DGBAS said.
Seasonal factors and the government’s price stabilization measures helped contain the impact of supply disruption from the Middle East war on consumer prices last month, with the average CPI rising 1.23 percent and core CPI increasing 1.94 percent in the first quarter compared with the same period last year, DGBAS data showed. However, greater passthrough of supply-led price pressure might start to emerge this month, as oil prices could remain high in the coming weeks despite the temporary ceasefire in the Middle East.
The producer price index rose 2.53 percent last month from a year earlier, up from a 1.07 percent decline in the previous month, indicating the transmission of high oil prices through the production channel. This was led by upstream industries such as petrochemicals and chemicals, as well as industrial and agricultural raw materials, the DGBAS said.
The nearly 70 percent surge in crude oil prices led the import price index, measured in US dollars, to jump 8.53 percent year-on-year last month, the largest increase in 44 months, which indicates Taiwan’s heavy reliance on imported oil and gas, the statistics agency said.
Whether imported inflation would emerge due to the war and soaring crude oil prices remains to be seen. Although the situation looks controllable for the time being because the government has frozen utility rates and implemented price stabilization measures, the public should still worry that prolonged government subsidies and support measures amid persistently high energy import prices could strain Taiwan’s finances, weaken the New Taiwan dollar, and push prices up further, creating a downward economic spiral.
Moreover, imported inflation tends to increase manufacturers’ production costs and deal a severe blow to energy-intensive sectors such as transport, logistics and power generation. At the same time, higher input costs across chemicals and industrial materials are likely to create broader supply chain pressures, weighing on profitability in sectors ranging from plastics and rubber to machinery and semiconductors.
Even if the government works hard to keep fuel prices stable at gas stations, as long as global energy prices stay high, there could be headwinds for Taiwan’s economy.
The latest government data showed Taiwan’s export-oriented economy continues to gain support from the global demand for advanced computing and cloud infrastructure, with exports surging 61.8 percent year-on-year to a new high last month and rising 51.1 percent in the first quarter, thanks to strong shipments of semiconductors, servers and information and communications technology products, the Ministry of Finance reported on Friday.
Experts say the artificial intelligence (AI)-related demand is largely structural rather than cyclical, and it is likely to persist despite near-term geopolitical shocks, so Taiwan’s economy would remain resilient.
However, Taiwan sources most of its energy from abroad, and its AI-led export performance is not fully insulated from disruptions to global energy markets and broader supply chains due to the Middle East war.
The Taiwan Semiconductor Industry Association said on Friday that the Middle East war has indirectly affected the semiconductor industry, particularly supplies of helium and hydrogen, which are necessary for semiconductor manufacturing. While semiconductor firms face no near-term shortage risk, as they still hold several months of inventory and recycle more than before, their main concern is about a stable supply in the long term.
Under such circumstances, this energy shock should bring an end to complacency and broaden preparation for any spillover effects that might emerge in the second quarter if oil and gas flows through the Strait of Hormuz remain halted.
Taiwan must learn from this energy crisis and adjust policies that would help enhance its energy resilience and industrial competitiveness.
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