A sharp increase in oil prices caused by the war between Russia and Ukraine is adding pressure to inflation in Taiwan and could dent GDP growth, top-ranking officials said yesterday.
Inflation would rise 0.5 to 0.7 percentage points higher this year if international crude oil prices climb to US$110 a barrel, from US$85 in February, central bank Deputy Governor Yen Tzung-ta (嚴宗大) said, adding that the trend would also weigh on GDP growth by 0.3 to 0.4 percentage points.
Yen was answering questions from lawmakers at a meeting of the legislature’s Economics Committee.
Photo: Chu Pei-hsiung, Taipei Times
The central bank would review its monetary policy at its quarterly meeting on Thursday, but whether rate hikes are necessary would be up to the board to decide, said Yen, who is also a board member.
Lawmakers were anxious to know whether Russia’s invasion of Ukraine would hurt Taiwan’s export-oriented economy in light of its heavy dependence on imported crude oil and natural gas.
“Inflationary pressures pose bigger threats than trade or financial exposures, which are controllable as Taiwan’s trade with Russia amounts to US$4.94 billion a year, accounting for a tiny 0.72 percent share — mainly imports of mineral and metal products,” Yen said.
Taiwan would find other suppliers if global economic sanctions cause disruptions in the supply of nickel, neon gas and other raw materials used in the manufacturing of semiconductors, electric vehicles and stainless steel, he said.
Taiwan’s financial institutions have limited exposure to Russia and Ukraine at less than 1 percent of their assets, Yen said.
However, escalating sanctions could dampen consumer confidence and interest in investment, and hurt the global economy as a whole, a scenario that is unfavorable for Taiwan, he said.
National Development Council Minister Kung Ming-hsin (龔明鑫) shared similar observations.
A sharp rise in oil prices driven by the war could push annual inflation up to 2.5 percent at most, he said.
The calculation was based on a “worst-case scenario” in which oil prices rise 30 percent by the end of the year, Kung said, citing statistics by the Directorate-General of Budget, Accounting and Statistics (DGBAS).
A 10 percent hike in oil prices would cause the consumer price index (CPI) to increase 0.2 percentage points, and a 30 percent rise in oil prices would cause the inflationary gauge to gain 0.6 percentage points, lifting annual CPI to about 2.5 percent, the DGBAS said.
The DBGAS last month forecast that Taiwan’s GDP would grow 4.42 percent this year, while the CPI would rise 1.93 percent.
Considering recent developments abroad, it now appears “very possible” that the CPI would exceed 2 percent this year, Kung said, adding that a 2.5 percent increase is “mild” by international standards.
The government would monitor the situation closely, Kung added.
Last year, 9.74 percent of Taiwan’s natural gas imports and 14.58 percent of its coal imports were purchased from Russia, the Bureau of Energy has said.
Additional reporting by CNA
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