Commerzbank's latest report highlights that Taiwan's inflation has accelerated, with headline CPI rising to 2.6% year-over-year in June from 2.2% in May, marking the fastest pace since January 2025 and surpassing the Central Bank of the Republic of China's (CBC) informal 2% threshold. Core CPI also increased to 2.5%, and services inflation remained firm at 2.9% compared to 2.5% previously. The main drivers of this inflation surge were higher fuel, gas, and electricity costs, though services inflation also contributed significantly [1].
Commerzbank analysts suggest that the persistent rise in core inflation is likely to prompt the CBC to adopt a more hawkish monetary policy stance. The CBC last raised its policy rate by 12.5 basis points to 2% in March 2024 and has maintained that level since. The report indicates a possible additional 12.5 basis points hike in the second half of the year, especially as AI-driven export growth and strong domestic demand continue to support the economy [1].
Despite these robust economic fundamentals, the Taiwan Dollar (TWD) has weakened, with USD/TWD rising to 32.19, near the year's high. This depreciation is attributed to net seasonal dividend outflows, which have weighed on the TWD. However, analysts expect that once these outflows subside, there could be a pullback in USD/TWD, potentially strengthening the TWD [1].
Looking ahead, while lower oil prices may help moderate headline inflation, the ongoing strength in core and services inflation gives the CBC less flexibility to overlook temporary energy-driven price pressures. The combination of AI-led income gains, strong domestic demand, and persistent inflation suggests that monetary tightening could continue in the near term [1].
CONCLUSION
Taiwan's rising inflation and strong economic performance are likely to push the CBC towards further monetary tightening, with a potential rate hike in the second half of the year. While the Taiwan Dollar is currently under pressure due to seasonal factors, analysts anticipate a possible rebound once these effects diminish.