Taipei, June 28 (CNA) An average increase in electricity rates of 8.4 percent announced by the Ministry of Economic Affairs Monday, with a 15 percent increase for large industrial users from July 1, is widely expected to drive up Taiwan's consumer price index (CPI).
The hike, which mainly targets heavy industrial users of electricity will have limited impact on Taiwan's gross domestic product (GDP) and the CPI because most of large users are export-oriented and are highly internationally competitive, meaning they can pass on the costs to foreign downstream customers, Chang Chien-yi (張建一), president of the Taiwan Institute of Economic Research (TIER), said Monday.
According to TIER initial estimates, the electricity price hike will lower GDP by less than 0.1 percentage points and increase the CPI by 0.1-0.2 percentage points this year, Chang added.
Although the energy pricing adjustment only targets heavy industrial users, an average 8.4 percent price rise across the board, could still impact the CPI, said Liang Kuo-yuan (梁國源), chairman of the Yuanta-Polaris Research Institute, on Monday in response to the pricing adjustment.
Even though the rate hike does not apply to small businesses in various sectors, including department stores, catering firms, cinemas, gyms and other industries, it will still lead to higher inflation expectations and contribute to a surge in the CPI, given the high industrial correlation effect on electricity consumption, according to Liang.
In addition, noting that electricity and energy are major elements in manufacturing, Liang said that higher electricity prices will certainly impact output and GDP.
Moreover, the Directorate General of Budget, Accounting and Statistics (DGBAS) on Monday said the electricity pricing adjustment could raise the CPI by 0.043 percentage points this year.
In addition, Thomas Wu (吳東亮), chairman of the Chinese National Association of Industry and Commerce, said in a statement issued Monday that the hike may impact industries and businesses that are gradually finding their way out of the COVID-19 pandemic as higher summer electricity rates are in place from June until September.
He urged the government come up with more complementary measures to deal with the issue.
Although international oil prices remain high due to geopolitical factors, the upward pressure on oil prices seems to have eased as the United States and the world's other major oil producers continue to increase production, Wu said.
Meanwhile, with the increased risk of stagflation on the horizon, the statement advised the government to consider carefully before increasing electricity prices again later in the year.
To prevent higher electricity prices driving up domestic prices and increased global prices for food and raw materials stoking inflation, Wu also called on the government to extend the tariff reduction and exemption measures on imports of bulk materials until the end of this year.
Meanwhile, he also suggested the government should raise key interest rates as slowly as possible, and work to stabilize the exchange rate in order to help ease the pressures of rising commodity prices.
Taiwan's annual electricity consumption is estimated to grow by an average of 2.5 percent over the next few years, Wu said citing an MOEA forecast.
Noting that sufficient and stable power supply is a major concern to the business sector, Wu said he hopes the government will consider extending the life of existing coal-fired and nuclear power generation units to maintain stable power supply.
The hike also sparked concerns from the opposition Kuomintang.
New Taipei Mayor Hou Yu-ih (侯友宜) said on Tuesday that the increase in electricity prices for industrial users will also impact people's livelihoods because soaring manufacturing costs will undoubtedly be passed on to consumers.
After raising electricity prices, the government needs to formulate comprehensive supporting measures and energy plans to minimize the impact of the policy on people's livelihoods, he said.
At a press conference Tuesday, KMT Deputy Secretary-General Wang Yu-min (王育敏) described the electricity rate hike as wrong energy policy, saying the government has made the pricing adjustment at the wrong time.
It could prove very costly to Taiwan's economy because the hike will lead to an increase in commodity prices, she said, asking whether the government will take complementary measures to curb soaring prices.
KMT legislative caucus whip Tseng Ming-chung (曾銘宗) also criticized the government for breaking its promise that electricity prices would not be increased significantly, saying it is likely to add to the inflationary pressures faced by households.
The KMT caucus also said the government should clarify whether electricity prices will be raised again after the local government elections at the end of this year.