Citibank forecasts 3.7% local growth

Speaking on the possible hikes in domestic electricity and water prices, Cheng said a one-off adjustment will not cause much higher pressure on inflation.

“Compared with other Asian countries, Taiwan does not face a severe inflation problem,” Cheng said.

He explained that as water, electricity and gas supplies account for just 3.7 percent of Taiwan's consumer price index (CPI), a 10-percent increase in water and electricity prices will likely boost CPI by only 0.3 percentage points this year.

As a result, Citi has raised its 2012 and 2013 Taiwan CPI forecasts to 1.7 percent and 1.9 percent, from 1.4 percent and 1.7 percent, respectively, given upside risks that include higher international crude oil prices, higher taxes, higher food prices and improving wage growth.

Domestic unleaded gasoline prices were hiked April 2 by between NT$2.3 (US$0.078) and NT$3.6 per liter, or about 7 to 11 percent, the biggest one-time increase in domestic fuel prices since May 2008.

The hike will lower Taiwan's economic growth rate by 0.22 percentage points and push inflation 0.37 percentage points higher, according to the Ministry of Economic Affairs.

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