Taiwan Inflation


Taiwan: Inflation declines in December

January 5, 2011

In December, consumer prices fell 0.74% over the previous month, which contrasted the 0.21% price rise recorded in November. The lower reading reflected falling prices for vegetables (-27.54% month-on-month), due to abundant harvests, as well as lower prices for clothing (-2.53% mom). Owing to the pronounced price drop, annual headline inflation fell from 1.5% in November to 1.3% in December, contrasting market expectations that had inflation rising to 1.8%. Meanwhile, the core inflation index, which excludes volatile categories such as fresh food and energy, was virtually unchanged, dropping a meagre 0.06% over the previous month. As a result, annual core inflation remained unchanged at November's 0.9%, while annual average headline inflation increased from 0.8% in November to 1.0%. The Central Bank raised the discount rate at its latest quarterly policy meeting held on 30 December, in a move widely expected by market analysts. The Bank lifted the policy rate by 12.5 basis points to 1.625%, arguing that the economy was performing better than expected amid strong exports and investment. In addition, the higher rate should curb asset-price inflation, particularly home prices. The government expects inflation to average 1.85% in 2011.


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