DGBAS increases CPI growth forecast

Despite the average 11% electricity price hike, small vendors would not have to shoulder a heavy financial burden, TIER economist Fang Chun-te said

The Directorate-General of Budget, Accounting and Statistics (DGBAS) yesterday raised its growth forecast for Taiwan’s consumer price index (CPI) this year to 2.03 percent ahead of electricity rate hikes next month.

The DGBAS’ forecast was up from 1.85 percent last month, and came as the central bank upgraded its estimate to 2.16 percent from 1.89 percent last week, after the

Ministry of Economic Affairs announced an average 11 percent increase in electricity rates.

The increase works out to about NT$3.4518 per kilowatt-hour (kWh) for households and industrial users.

Also last week, the central bank announced a surprise interest rate hike of 12.5 basis points, which raised the benchmark discount rate to 2 percent, as the monetary policymaker aimed to tackle growing inflationary pressure.

The increase in electricity rates is unlikely to have much of an impact on inflation, as the hikes are specific to certain levels of power usage, Taiwan Institute of Economic Research (TIER, 台灣經濟研究院) economist Fang Chun-te (方俊德) said.

For example, the increase for most small vendors would be about 5 percent, which is unlikely to affect consumer prices significantly,

Fang said.

“Despite the average 11 percent hike, small vendors would not have to shoulder a heavy financial burden,” Fang said. “I do not think they will aggressively raise product prices to pass on the additional costs to consumers.”

Moreover, about 60 percent of the small shops in Taiwan use less than 700kWh of power per month, meaning their electricity bills would only increase 3 percent, he said.

Only about 20 percent of vendors in Taiwan consume 701kWh to 1,500kWh per month, which would translate to an approximate 5 percent increase in their electricity bills, Fang said.

In the industrial sector, about 440,000 companies could expect an electricity rate hike of about 14 percent, while those that consume more than 500 gigawatt-hours a year would face an increase of about 25 percent, he said.

As most companies in the industrial sector are exporters, they would most likely pass on their additional costs to foreign clients rather than local consumers, Fang said.

Under the new power rate adjustments, households that consume up to 330kWh per month would face a 3 percent rate hike, while those that use 331kWh to 700kWh a month would see a 5 percent increase, he said, adding that hose households account for about 93 percent of all households in Taiwan.

“Therefore, I think that the latest power rate hikes will raise CPI growth by less than 0.4 percentage points this year” to more than 2 percent, Fang said.

TIER is scheduled to update its forecast next month.

In January, the think tank predicted CPI would grow 1.95 percent this year.