Despite a rebound in the headline, underlying inflation pressure eases in Taiwan

Another strong typhoon hit Taiwan near the end of September, just as the supply of fresh food was slowly recovering from the two tropical cyclones in August. Again, vegetable and fruit prices are likely to have increased strongly in September, pushing up food inflation. This increase in food prices alone is expected to have raised CPI inflation by 0.5pp (in yoy terms). Yet, declines in fuel prices may offset a small part of the strength in food prices. 

On balance, the headline CPI figure is expected to have recovered to -0.1% yoy in August from -0.5% yoy in July. However, some weakening is expected in the core inflation segments in August. Moreover, earnings growth dropped sharply in July, although the labour market remained tight. Consumer confidence, albeit way above its long-term average, dropped for the fifth straight month in September. 

"The sluggish external demand seems to have affected the domestic economy. Hence, we see the underlying inflation pressure from the demand side as being likely to have eased. Core CPI inflation is unlikely to keep its strength at the current level and we expect it to have dropped to 0.4% yoy in September from 0.6% yoy in August", notes Societe Generale.