COST OF LIVING/High U.S. consumer prices may hurt Taiwan's exports: Expert

07/14/2022 09:24 PM
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Taipei, July 14 (CNA) Weakening demand due to inflation in the United States, which hit a 40-year high in June but is expected to slow down gradually, might affect Taiwan's exports of consumer electronics products in the second half of this year, a local expert said Thursday.

The U.S. consumer price index soared by 9.1 percent in June from a year ago, the biggest yearly increase since November 1981, sparking concerns about U.S. inflation hitting a peak and the Federal Reserve's plans for further rate hike.

While the U.S. CPI growth is likely to slow down, the probability of July's CPI being above 8 percent is still high, said Dachrahn Wu (吳大任), director of National Central University's (NCU) Research Center for Taiwan Economic Development.

In addition, with the U.S. unemployment rate remaining low at 3.6 percent in June, it is likely the Fed will go ahead with its plans to raise its key interest rate by at least 0.75 percentage points, according to Wu.

The U.S. Fed's big interest-rate hikes have caused a rapid rise in mortgage rates for home buyers. This rise plus soaring consumer prices could squeeze more out of consumers' budgets for unnecessary expenses and affect Taiwan's exports of items such as mobile phones, notebooks, and bicycles in the second half of this year, Wu said.

As a result, upstream suppliers including semiconductor makers could be impacted in the long run, Wu added.

Also, while some Taiwanese wafer manufacturers had continued to expand capacity over the recent two years, they should be alert to declining market demand in the U.S. and Europe that could lead to insufficient capacity utilization and cause a financial burden on financially weak companies, said Wu.

The 9.1-percent increase in U.S. consumer prices in June could be the peak of inflation for now, judging by a recent fall in international oil prices, said Darson Chiu (邱達生), a research fellow of the Department of International Affairs at Taiwan Institute of Economic Research.

The slowdown from March in monthly increases of the U.S. producer price index (PPI), which measures the average change in prices received by domestic producers for their output, and a stronger U.S. dollar that generally pushes the prices of international raw materials lower are likely to support estimates that the CPI should have reached a peak in June and that CPI growth will gradually moderate, according to Chiu.

The seasonally adjusted producer price index for final demand increased by 0.8 percent in May. This increase followed rises of 0.4 percent in April and 1.6 percent in March, according to the U.S. Bureau of Labor Statistics.

Chiu predicted that the Fed could raise its benchmark interest rate by three-quarters of a percentage point or 1 percentage point at its meeting later this month.

Taiwan's CPI rose by 3.59 percent in June year-on-year, the highest in nearly 14 years and the fourth consecutive month in which the CPI growth has exceeded 3 percent, the Directorate-General of Budget, Accounting and Statistics (DGBAS) reported on July 6, adding that it should be the highest for this year.

(By Su Szu-yun and Evelyn Kao)

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