Tourism, lower oil prices likely to support Taiwan’s services employment in 2015

Inflation came in at -0.2% y/y in February (January: -0.9%; December: 0.6%), below the expectation and consensus (0.2%). Again, the softness was narrowly focused on cheaper fuel, but exacerbated by lower vegetable prices and utility rebates.
 
On a seasonally adjusted m/m basis, inflation was flat after falling for four consecutive months (January: -0.8% m/m; December: -0.1% m/m). The fall in prices in February was driven by further pass-through from lower oil prices and a m/m plunge in vegetable prices due to oversupply. 

Additionally, housing inflation fell for the second month in a row, as electricity rebates were given out to 29% of the households (estimated around 3.4mn households whose monthly electricity bill was less than TWD800). There is no deflation in Taiwan.
 
Quite the contrary, core inflation rose to 1.8% y/y in February (January: 0.6%; December: 1.4%), supported by the services CPI (February: 2.4%; January: 0.3%). 

Overall, the services economy remains relatively brisk in our view, supported by resurgent hiring amid a tourism boom. 

Barclays notes in a report on Monday:

• We expect strong domestic demand and firming wages to support core inflation, which will help to offset the drag from lower electricity prices on the back of the new pricing tariff, which is due to be announced in mid-March and effective from April. 
  
  
• We continue to expect the tourism boom and lower oil prices to support Taiwan's services employment and dom