10.08.2001
Taiwan in deflation

• The CPI rose only 0.4% MoM and was down 0.5% YoY in Sept. The rise is below our expectations, as we were predicting a significant upsurge in food prices in the aftermath of two typhoons. Food prices were up only 2.0% MoM and remained flat on a YoY basis. Clothing prices declined 1.6% MoM and 2.0% YoY. Overall, goods prices gained 0.8% MoM, but fell 0.8% YoY while services prices were flat MoM and declined 0.1% YoY, following 1.6% YtD growth. The fall in CPI will push real interest rates up again, despite recent cuts by the CBC, bringing its re-discount rate down to 2.5%. The CBC needs to further trim its rediscount rate amid falling prices and record high unemployment. Real interest rates need to fall further.