Taiwan’s central bank warns of inflation risk without subsidies — Taipei Times

Taiwan Central Bank Governor Yang Chin-long said that consumer prices could face renewed pressure if the government ends energy subsidies for state-owned Taiwan Power Co and CPC Corp, Taiwan, while global oil prices continue to rise. He made the statement while presenting a report to the Legislative Yuan’s Finance Committee, Taipei Times reports.

Inflation forecast

According to the central bank’s written report, Taiwan’s consumer price index is expected to rise by 2.03% this year and by 1.83% next year. Major Taiwanese and international institutions forecast inflation at an average of 2.04% this year and 1.89% next year.

The consumer price index exceeded the government-defined 2% inflation warning threshold for five consecutive months through last month. At the same time, Yang Chin-long considers inflation manageable, as most forecasters expect more moderate global energy price movements and inflation to fall below 2% next year.

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Subsidies and interest rates

The central bank chief noted that rising oil costs are a supply-side inflation factor. In his view, government measures to stabilize electricity tariffs and fuel prices are a more targeted tool than raising interest rates, which would have a broader impact on the economy but would be less effective in curbing inflation caused by supply-side factors.

Responding to a question from Democratic Progressive Party legislator Lee Kuen-cheng, Yang Chin-long said the regulator would monitor domestic prices, the economic situation and inflation forecasts when making rate decisions. Inflation of about 2% next year would be acceptable, he said, but significantly higher figures would require a more cautious approach.

The central bank governor also said inflation could remain manageable even without budgetary support for Taiwan Power Co and CPC Corp, Taiwan, if the government maintains measures to stabilize energy prices. However, the simultaneous termination of budgetary support and energy subsidies amid further increases in global oil prices could intensify inflation.