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Talk of the Day -- Central Bank to help rein in inflation

2012/04/13 22:55:42

The government has decided to raise domestic electricity prices from May 15. In an effort to ease inflationary concern, Central Bank Governor Perng Fai-nan said Thursday that the bank will definitely take necessary steps to help rein in inflation.

Perng also optimistically forecast that the annual growth rate of the Consumer Price Index (CPI) will not exceed 2 percent this year.

In his view, Perng said, the CPI growth rate would hover around 1.9 percent this year.

"If the inflation rate exceeds our forecast, the Central Bank will certainly adopt necessary measures to help maintain domestic price stability," he added.

The following are excerpts from local media coverage of the possible impact of fuel and electricity price hikes on domestic inflation rate and household expenditures:

Economic Daily News:

After raising domestic fuel prices by 10 percent on average April 2, the Ministry of Economic Affairs announced Thursday that electricity prices will go up across the board from May 15.

While household electricity rate will rise by an average of 16.9 percent, industrial and commercial electricity rates will be raised by 35 percent and 30 percent, respectively.

According to estimates by the Directorate General of Budget, Accounting and Statistics (DGBAS), the dramatic upward adjustments of fuel and electricity prices would lead to a NT$48 billion increase in overall household expenditure a year.

The fuel and electricity price surges are also expected to drive consumer price hikes in months ahead. Market mavens said prices of daily necessities could rise in the second half of the year to reflect soaring operating costs.

The DGBAS forecast earlier this year that the 2012 CPI growth rate would be around 1.46 percent, while the Economics Ministry said that the fuel and electricity price hikes could push up the CPI growth rate by 0.83 percentage points. Should that be the case, the annual inflation rate could reach 2.29 percent.

But Central Bank Governor Perng said the ministry's estimate may be too pessimistic. "We should be able to keep the inflation rate below 2 percent," he added.

The country's top banker confirmed that the central bank has begun to tighten money supply to help maintain consumer price stability.

The new monetary policy has reflected in steady rises in interbank overnight lending rates, banking sources said. The rate hit 0.458 percent Thursday, the highest level since Jan. 6, 2009.

To keep inflation rate at bay, the central bank may even raise its key interest rates and allow appreciation of the Taiwan dollar, the sources added. (April 13, 2012).

United Daily News:

Fuel and electricity price hikes will drive up input costs and eventually take tolls on corporate profits, industry analysts said.

Petrochemical and auto industries are hardest hit by soaring fuel prices, while nearly all major industries and commercial service providers will be affected by an overall 30 percent rises in electricity rates, the analysts said.

Electronics contract makers, flat panel manufacturers, plastics, cement and textiles sectors will all be affected and their earnings could shrink by an estimated 10 percent, the analysts predicted. (April 13, 2012).

(By Sofia Wu)