, Taiwan

Taiwan's inflation to dip for third month in a row

Projected number is 2%.

According to DBS, headline CPI inflation is projected to ease to 2.0% YoY in November, the third consecutive month of slowdown and sharply lower than the peak level of 3.4% in August.

Here's more from DBS:

The downtrend in food prices remains intact for now, thanks to the recovery of agricultural supply and the normalization of weather conditions after the typhoon season.

Meanwhile, the appreciation of the TWD against the USD and the JPY should help to contain imported inflation. The year-on-year growth in the TWD-denominated import prices has remained negative as of October (-5.5%), thanks to the strengthening of the Taiwan dollar.

Notably, the TWD appreciated about 5% against the JPY since July. This should effectively reduce the import costs of capital and consumer goods, taking into account that Japan is Taiwan’s largest import market and accounts for 20% of its total imports.

Despite the slowdown in headline inflation, core inflation is expected to remain sticky at about 1% YoY in November, reflecting the passthrough of higher energy and food prices earlier this year.

Housing rentals growth has also accelerated since 2Q this year, due to the spillovers from property price increases.

Overall, we expect headline inflation to slow to 1.3% in 2013 from near 2% this year, but to remain slightly higher than the long term average of 1.0%.

As inflation gradually normalizes and the economy heads towards a modest recovery, the central bank is likely to stay put on monetary policy. The policy discount rate is expected to be left unchanged at 1.875% this quarter and the next three quarters.

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