Taiwan's inflation likely to stay positive in Q4

Taiwan's September inflation came in at 0.28% y/y, markedly stronger than expected and turning positive for the first time in eight months. The upside surprise was largely driven by higher food prices amid the ongoing typhoon season (Typhoon Dujuan in late September and excessive rainfall post Typhoon Soudelor). 

As a result, food prices were up 5.9% y/y, led by soaring vegetable prices (Sep: 34.1% y/y). The jump in food prices more than offset the oil drag, as retail pump prices fell by another 3.8% m/m (Aug: -4.3%; Jul: -2.7%). Core inflation remained broadly unchanged at 0.60% y/y in September. 

There is still no deflationary risk seen, as core inflation continues to be supported by solid domestic demand, as evidenced by the relative resilience in services inflation, which stood at 0.7% in September (Aug: 0.8%; Jul: 0.9%). 

"The marginal decline in services inflation should not be of concern, given it is mainly driven by seasonal pattern of lower airfare post summer peak season as well as retail discounts. As such, 2015 inflation is forecasted at -0.3% and inflation is expected to stay positive in Q4 on a favourable low base from last year", says Barclays.