(Bloomberg) -- Taiwan’s consumer inflation in June reached the highest level since August 2008 as global commodity prices remained elevated, putting pressure on officials to contain inflationary risks without hurting the local economy.
The consumer price index reached 3.59% last month, the Directorate General of Budget Accounting and Statistics said in a Wednesday statement. That’s roughly in line with the 3.6% rise in a Bloomberg survey of economists.
CPI has now risen above 3% for four straight months. It’s also been above 2% -- the milestone set by the central bank as an alert level -- for nearly a year.
Global inflation is on the rise, pressuring many economies as the cost of commodities soared earlier this year after Russia invaded Ukraine.
Spillover effects from heightened prices are already impacting Taiwan, where the industrial sector was just hit with its first power price increase in four years as the state-owned utility grapples with soaring fuel costs. Affected users include Taiwan Semiconductor Manufacturing Co., the world’s largest contract chipmaker, and the higher electricity rates will likely pressure Taiwan’s manufacturers even more, weighing on producer prices. PPI in May grew nearly 14% from a year prior.
Taiwan’s wholesale price index rose 16.45% year-on-year. That’s slightly down from May, which was a record high.
Agricultural disruption caused by rainy weather has pushed up the cost of fruits and vegetables, said Tieying Ma, economist at DBS Group Holdings Ltd., earlier this week before the inflation data was released. Ma noted, though, that global energy and food prices have showed tentative signs of stabilization.
The government is now tasked with trying to strike a balance in taming persistently high inflation without hurting the economy. In addition to the war in Ukraine, repeated Covid outbreaks and lockdowns in China are causing chaos for global supply chains and have impacted some activity for Taiwan, given the extent to which Taiwanese firms operate in China.
Taiwan’s decision to ease Covid-related border controls should give its domestic economy a boost, even as cases have spiked since the government began lifting restrictions.
However, the central bank will also have to balance growth with interest rate increases if it hopes to bring inflation under control. Last month, the bank raised interest rates by a smaller-than-expected amount, a decision that Governor Yang Chin-long called “very difficult.”
“Inflation is certain to rise further but we also had to consider the potential hurt to sectors reliant on domestic demand so that’s why we decided to raise the rate by a little less and implement liquidity controls,” he said at the time.
DBS’ Ma said that the pressure for monetary policy tightening will likely be reduced to some extent toward the fourth quarter as inflation may moderate and concerns about a slowdown in growth may increase. Taiwan’s strongest economic expansion in a decade cooled in the first quarter, and the government in May cut its annual forecast for economic growth to 3.91% as surging prices and Covid outbreaks cloud the outlook.
©2022 Bloomberg L.P.
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