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Merrill Lynch raises inflation forecast for Taiwan to 2.2%

2012/04/16 20:45:07

Taipei, April 16 (CNA) Bank of America Merrill Lynch has raised its forecast for inflation in Taiwan in 2012 from 2 percent to 2.2 percent following the government's announcement of major increases in power rates.

The bank also revised upward its inflation forecast for 2013 from 1.5 percent to 1.9 percent, saying Taiwan's consumer price index (CPI) was likely to continue to feel the effect of the latest price hikes into next year, according to a research note released Monday by the bank.

"For individual sectors, we calculate that the cost of electricity accounts for 11 percent cost of goods sold of cement, 2-6 percent of steel, 3-9 percent of petrochemicals, and 2-3 percent of textile companies," said Katherine Hu, a Taiwan-based Merrill Lynch equity strategist.

"Given this, those industries should be more sensitive to electricity price hikes among major sectors in Taiwan," she said. "Among tech firms, printed circuit board companies are the most sensitive to the electricity price rise."

The Ministry of Economic Affairs announced last week that it would raise electricity prices by 35 percent for industrial users, 30 percent for commercial users and 17 percent for household users, effective May 15.

Merrill Lynch estimated that the direct impact of a 30 percent hike in electricity prices will lead to a 0.66-percentage-point rise in the CPI.

Hu predicted, however, that the direct impact of the rise in power rates on consumption would be limited despite inevitably taking a bite out of people's spending power.

According to the ministry, families in Taiwan on average will spend NT$105 (US$3.56) more per month on electricity after the hike.

That means the aggregate spending power of Taiwan's households will suffer a drag of about NT$20.5 billion, or only 0.25 percent of private consumption, Hu said.

(By Jeffrey Wu)