Taiwan inflation to edge up to 2.1% in 2013

Blame it on administrative price increases on electricity and fuel.

According to Nomura's Asia Special Report, administrative price increases for items like electricity and fuel will support a gradual rise in CPI inflation from 1.3% y-o-y in Q1 2012 to 2.1% in Q1 2013, despite weak economic growth. The government decided to implement electricity tariff hikes in multiple stages with the first stage beginning on 10 June and the second stage from 10 December. The government will decide whether it needs to increase tariffs further in 2013 at later stage.

Here's more from Nomura:

However, inflation pressures are likely to remain subdued as the Taiwan dollar is expected to appreciate against the US dollar and wage increases are likely to remain limited. In fact, Taiwan‟s real wages have not risen very much over the past ten years relative to other advanced Asian economies, which has created low inflation expectations.

Scenario 1. We would expect a substantial rise in international commodity prices to push up CPI inflation with a lag, despite the mitigating impact of currency appreciation, and result in higher CPI inflation of 3.6% y-o-y in Q1 2013.

Scenario 2. Lower international commodity prices and weak economic growth would lower inflation pressures substantially and result in lower CPI inflation of 1.6% y-o-y in Q1 2013.

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