Taiwan inflation dropped to 0.14% year on year in the month of December, which is lower than what was expected by market consensus. This drop in the headline inflation was mainly led by food, with vegetable and fruit prices declining by 15.4% and 1.1% mom on over supply.
Food contributed 0.60pp less when compared to November, whose shrinking contribution offset a smaller drag in oil price, as last year's low base start effects help year on year comparison.
The resurgent downward pressure on international oil prices cut further into retail pump prices, by -5.8% m/m (Nov: -3.2%) in December.
Core inflation edged down to 0.78% y/y, on the back of Christmas sales at major retail stores as well as lower education and entertainment expenses.
"All said, today's release brings full-year inflation to -0.3% y/y, 10bp below our forecast. With oil prices likely to stay at current levels for longer, coupled with a downward adjustment to healthcare costs (effective from January), we lower our 2016 CPI forecast by 50bp to 1.2% y/y", says Barclays in a research note.
