Taiwan's food price growth rocketed to 5% in past 3 months

Price gains remain strong.

According to DBS, their inflation forecast for 2014 has been revised up to 1.4% from 1.1%. As of May, headline CPI inflation has remained sticky at 1.6% YoY for three consecutive months. This is notably higher than the averages of 0.4% in Jan-Feb and 0.8% in the full year of 2013.

Food prices growth has jumped to 5.0% in the past three months. Compared to the year ago period, the price gains in meat, eggs, aquatic products and fruits were especially strong.

Here's more from DBS:

In May, meat prices retreated slightly after rising sharply earlier this year due to the outbreak of piglet epidemic.

The decline was, however, offset by the surge in vegetables prices in May as a result of heavy rainfalls.

Going forward, the risks of food inflation staying high in the coming months can’t be dismissed, given the upcoming typhoon season in Taiwan and the warnings of El Nino conditions in the Pacific this summer.

The ongoing rise in food inflation is primarily caused by the supply side factors and should be a temporary phenomenon. The risks of second round inflation are judged to be low.

GDP growth is still running below the trend and spare capacity is lingering in the economy. The room for companies to pass costs and for employees to negotiate wages should be both limited.

A rate hike from the central bank in response to the supply side inflation is unlikely, in our view. We maintain the forecast that the central bank will stay pat in 2Q-3Q before entering the tightening cycle in 4Q.

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