Typhoons seen fanning Taiwan's inflation threat

By Lee Chyen Yee

TAIPEI, July 29 (Reuters) - Taiwan's consumer inflation will likely peak at higher-than-expected levels in July or August, as food prices reel from back-to-back typhoons this month. Tropical Storm Kalmaegi and Typhoon Fung-Wong ravaged Taiwan over the past two weeks, causing combined agricultural losses of T$1.5 billion ($49 million) amid images of farmers fretting in orchards littered with fallen fruit.

Economists from JPMorgan, KGI Securities, Mega Securities and Standard Chartered expect July's inflation to be more than 5 percent, slightly higher than June's 4.97 percent, following the two storms. Mega had the highest forecast of 5.6 percent, which would be a near a 14-year peak.

Full-year inflation forecasts ranged from 2.9 percent to 4.2 percent, with some economists saying those estimates could rise, which could prompt the central bank to lift interest rates again in September. Taiwan's government expects 2008 inflation to be at 3.3 percent.

"With the typhoons, that will possibly accentuate, or magnify, the spike (in inflation) in July and August," said Grace Ng, an economist with JPMorgan, who expects July's inflation to exceed 5 percent and August at slightly below 5 percent, barring any major weather disasters.

Prices of food, which make up about a quarter of Taiwan's consumer price index, have been surging as the bad weather crimped supplies of fruit and vegetables. In some parts of Taiwan, prices of leeks rose by 40 percent in a week, media reported.

"Nobody wants to buy leafy vegetables because prices have gone up so much. They are buying melons instead," said a vegetable seller, sweeping her stall the day after the latest typhoon passed through, amid a dearth of customers.

"Some people bought vegetables in bulk a few days ago because they were afraid prices will go up further," she added.

However, economists largely expect inflation to ease gradually from September onwards due to high base measurements during the same period last year, when the weather was exceptionally unfavourable.