Taiwan’s Inflation came in -0.6% y/y in March (Feb: -0.2%; Jan: -0.9%), broadly in line with consensus expectations (-0.7%). On a seasonally adjusted m/m basis, inflation rose 0.55%, the first meaningful rebound in five months (Feb: 0.0%; Jan: -0.8%), driven by a recovery in gasoline prices and the end of the electricity rebate programme, which resulted in a 26.6% drop in Jan-Feb electricity CPI. Overall, the softness in March CPI was mainly due to ‘price normalisation’ after the end of Lunar New Year, as food and services gave back some of their February price gains. This was exacerbated by lower oil prices, which saw a further pass-through to gas and other core components such as air fares. Indeed, core inflation rose only 1.0% (Feb: 1.8%; Jan: 0.6%) while services inflation was 1.1% (Feb: 2.4%; Jan: 0.3%) on the back of the post-LNY price normalisation. Inflation is likely to remain subdued in the coming months on the back of new electricity pricing tariffs, which will cut electricity prices by 7.34% on average and are effective from April. This will likely subtract 20bp from the headline CPI. “Given the lower electricity prices and the continued pass-through from lower oil prices, we recently cut our 2015 inflation forecast from 1.0% to 0.3%. That said, we still see no deflationary risk in Taiwan and expect services CPI to rebound in the coming months, supported by strong domestic demand and firming wages”, said Barclays in a report on Wednesday.

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