Taiwan’s January inflation accelerates on utilities

Taiwan's inflation accelerated 0.81% in January, as compared with Barclays' forecast of 1% and consensus expectation of 0.75%. Utilities mainly drove the rise in headline inflation. It had entered a low base in January 2015 when a sharp decline in oil prices passed onto utility costs. With a reduced drag for oil and utilities, headline inflation is slightly accelerating.

Meanwhile, the retail pump prices dropped 8% m/m in January due to the renewed downward pressure on international oil prices. However, core inflation decelerated to 0.65% due to lower clothing prices and deceleration of healthcare and miscellaneous inflation. Lower oil prices continue to be the main drag on CPI; however, the distortion continues to weaken noticeably on the year-earlier low base. Fuel prices removed 0.4pp from the headline inflation rate.

"We continue to believe inflation is likely to creep up to 1.2% y/y in 2016 on a lower base, even as continued oil prices and labour market weakness may add slightly to downside risks", says Barclays.

Meanwhile, the CBC is likely to lower its policy rate by additional 12.5bp during its March meeting against the backdrop of a weakening labor market that might reduce domestic consumption more deeply in Q1 16 and the continued weak inflation outlook in 2016.