Singapore-based DBS Bank yesterday raised its forecast for Taiwan’s consumer price index to 2.2 percent for this year from the 1.7 percent increase it predicted previously, as the nation’s economy continues to rebound while inflation risks mount.
“There is a shift in risk balance from growth to inflation, prompting considerations for policy tightening,” DBS Bank senior economist Ma Tieying (馬鐵英) told an online news conference.
Inflation is expected to remain elevated this quarter, with services inflation likely to be the prime driver, reflecting electricity price hikes and the pass-through effect from them, Ma said.
Photo: CNA
The central bank last month unexpectedly raised its policy rate by 0.125 percentage points in a bid to curb expected inflation following an 11 percent increase in electricity rates this month.
The across-the-board electricity rate adjustments are expected to drive inflation up by 0.27 percentage points this year, including a direct impact of 0.09 percentage points and an indirect impact of 0.18 percentage points, the central bank has said.
However, the hikes would not reverse Taiwan Power Co’s (台電) loss-making status, meaning more rate increases might be necessary later this year, Ma said.
“Electricity price reforms remain plausible over the long term, considering Taiwan’s imperative shift toward [more expensive] green energy, alongside challenges posed by climate change and energy security,” she said.
DBS Bank also trimmed its GDP growth forecast for Taiwan this quarter to 4.2 percent from 4.3 percent to reflect the economic effects of a massive earthquake that struck the east coast on Wednesday last week.
Thankfully, the quake’s epicenter was more than 100km from key manufacturing centers such as Hsinchu, Taichung and Tainan, while the inventory ratio in Taiwan’s semiconductor and overall manufacturing sector has remained above the historical par of 1.0, suggesting that companies have sufficient inventories to cope with the minor disruptions, Ma said.
DBS stood by its prediction of a moderate recovery in exports this quarter, when a cyclical upturn in the global semiconductor sector would lend support to Taiwan’s exports, she said.
As US technology giants ramp up artificial intelligence (AI) infrastructure to accommodate booming computational demand, there would be a surge in the need for high-performance logic chips, high-capacity servers, storage and memory chips, for which Taiwanese firms are the world’s leading contract makers, Ma said.
In addition, the emergence of conversational AI products could accelerate the replacement cycles for PCs, smartphones and other devices, she said, adding that local firms are also major suppliers of electronics used in such gadgets.
DBS retained its GDP growth forecast for Taiwan this year at 3.5 percent.
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