Taiwan August inflation to edge up above 2%

The country must brace itself for blows of price hikes in vegetables and fruits post-typhoon.

According to DBS, August trade and inflation data are due this week. Export growth is expected to improve on the YoY basis, helped by a low comparison base in 2H11. Electronics exports may also pick up on MoM basis, due to seasonal demand.

Here's more from DBS:

Fundamentally speaking, external demand remains lackluster. The weakness in China’s August PMI dampened the hope of a quick recovery in the Chinese economy. In the electronics sector, the US semiconductor book to bill ratio has stayed below 1.0 for two consecutive months since June.

Inflation, on the other hand, is projected to remain elevated above 2% YoY in August. Vegetable and fruit prices should have surged further, as two typhoons hit the island last month and caused larger losses in the agricultural sector. Import food prices will likely maintain a modest uptrend in August, due to the rise in global prices of wheat, corns and soybeans. Gasoline prices also went up in August.

An interesting phenomenon is that housing rentals in the CPI basket have picked up more noticeably since 2Q, reflecting the passthrough from higher property prices. The Sinyi property price index (existing home sales) bounced back by 7.9% in 2Q, and standing at only 2.6% below the peak levels seen in mid-2011. The Cathay index (new home sales) maintained a steady upward trend in the past four quarters and reached a new record high in 2Q. The rebound in property prices and the elevation in CPI inflation will continue to put the central bank in a difficult position, despite the need for stimulus to bolster economic growth.