COST OF LIVING/Inflation in Taiwan likely to hit 2.03% due to power rate hikes: DGBAS

Taipei, March 25 (CNA) The Directorate General of Budget, Accounting and Statistics (DGBAS) on Monday raised its 2024 growth forecast for Taiwan's consumer price index (CPI) to 2.03 percent, citing the electricity rate hikes announced last week.

In late February, when the DGBAS gave an estimate of a 1.85 percent for the 2024 CPI, the power rate increases had not yet been confirmed, DGBAS head Chu Tzer-ming (朱澤民) said in hearing of the Legislature's financial committee.

With the announcement of the power rate hikes, the DGBAS is now raising its 2024 forecast for Taiwan's inflation rate to 2.03 percent, Chu said, noting that the latest forecast came closer to the country's central bank's estimate made last week which said the CPI will grow 2.16 percent, an upgrade from the previous prediction of 1.89 percent made in December, after taking into account the power rate increases.

Last week, the Ministry of Economic Affairs (MOEA) announced an average 11 percent increase in electricity rates, which works out to about NT$3.4518 (US$0.108) per kWh, for households and industrial users. The decision was aimed at helping to stem the massive losses for the state-owned Taiwan Power Co. and will go into effect April 1, the ministry said.

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.

Central Bank Governor Yang Chin-long (楊金龍) said at a news conference on March 21 that the interest rate increase was aimed at helping to tackle growing inflationary pressure, due to the electricity rate hikes that were expected to be announced by the MOEA the following day.

March 21: Central bank announces surprise interest rate rise of 12.5 basis points

March 7: Taiwan CPI grows 3.08% year-on-year in February

At Monday's legislative hearing, Chu said that in light of the central bank's surprise rate hike, the government has decided to maintain its subsidies for certain types of loans, including student loans and laborers' relief loans.

Meanwhile, Fang Chun-te (方俊德), an economist at the Taiwan Institute of Economic Research (TIER), told CNA that 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.

For example, the power rate increase for most of small vendors will be around 5 percent, which is unlikely to significantly affect consumer prices, Fang said.

"Despite the average 11 percent hike, small vendors will 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."

He said that if the MOEA had imposed a 10 percent hike across the board, without the usage factor, that would have had a greater impact on inflation.

In fact, about 60 percent of the small shops in Taiwan use less than 700 kWh of power per month, which means they will see only a 3 percent hike in their electricity bills, Fang said.

Only about 20 percent of vendors in Taiwan consume 701-1,500 kWh of power per month, and they can expect an approximate 5 percent increase in their electricity bills, Fang said.

March 22: Taiwan to raise residential and industrial electricity rates

March 21: Central bank raises Taiwan's GDP, CPI growth forecasts for 2024

In the industrial sector, some 440,000 companies will see a power rate increase of around 14 percent, while those that consume more than 500 million kWh a year can expect an electricity rate hike of about 25 percent, he said.

Most companies in the industrial sector, however, are exporters, which means they will most likely pass on the additional costs to their foreign clients rather than to local consumers, Fang said.

"I think, therefore, that the latest power rate hikes will raise the CPI growth by less than 0.4 percentage points this year" to over 2 percent, he said, adding that many consumers may still feel the pinch from higher electricity rates.

According to the new power rate schedule, households that consume up to 330 kWh a month will face a 3 percent rate hike, while those that use 331-700 kWh per month will see a 5 percent increase in their electricity bills. Together, those households account for about 93 percent of the total number in Taiwan.

In January, before the power rate hikes were announced, TIER had forecast that Taiwan's CPI would grow 1.95 percent this year, and the think tank is scheduled to update its forecast in April.

Commenting on the power hike issue, Dachrahn Wu (吳大任), director of the Economic Research Center of National Central University, said the impact on domestic inflation is unlikely to be heavy, but he also projected that the CPI will grow by more than 2 percent this year.

Wu said he supported the MOEA's decision to structure the electricity rate hikes so that smaller users will not be significantly affected.

March 23: TSMC maintains long-term profit margin goal despite power rate hikes

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Taiwanese companies, meanwhile, are facing not just increased power rates, but also higher operational costs due to "green inflation," as countries around the world are working hard to achieve net zero carbon emissions, he said.

For its part, Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest contract chip maker, which is said to fall into the category of the ultra-high voltage power users, is expected to see its electricity bills increase by 25 percent, as it consumes more than 500 million kWh per year.

Despite the power rate hike, TSMC said, it is maintaining its long-term gross margin target of over 53 percent and will continue its energy conservation efforts at its wafer fabs.

A gross margin refers to the difference between revenue and the cost of goods sold.