Tank trailers transport fuel from a refi
Fluctuations in international energy prices may affect Taiwan's inflation trend, and the government must strike a balance between energy costs, fiscal burden, and the cost of living.

Taiwan’s central bank said domestic inflation could climb further if international oil prices continue to rise and the government is unable to extend energy subsidies and related budget allocations. How energy prices reflect costs has become an important issue affecting household spending, business operations and government finances.

According to a Central News Agency report, Central Bank Governor Yang Chin-long told the Legislative Yuan’s Finance Committee on Oct. 28 that Taiwan’s consumer price index (CPI) has remained above the 2% inflation alert level for five consecutive months. However, the central bank still considers overall price conditions to be under control.

The central bank forecasts that Taiwan’s CPI will rise 2.03% in 2026 before slowing to a possible 1.83% in 2027. The forecast remains subject to international energy price trends. If energy costs continue to rise and the government cannot keep using energy price stabilization measures to cushion the impact, inflation risks could increase.

Yang said higher energy prices are primarily a supply-side factor, making the government’s energy price stabilization mechanism a more targeted response than raising interest rates directly. Although higher rates can curb some demand, they may have limited impact on cost increases caused by supply-side pressures.

Meanwhile, Minister of Economic Affairs Kung Ming-hsin told the Legislative Yuan that if international energy prices were fully passed through to domestic electricity and fuel prices, annual CPI growth could exceed 3%, putting pressure on lower-income households. The government therefore hopes to use budget allocations to balance the finances of state-owned energy companies with price stability.

The key challenge for policymakers will be finding a balance among energy costs, the finances of state-owned enterprises and households’ living expenses. If international oil prices remain volatile, whether energy subsidies will continue and whether the related budgets can be approved will be closely watched by the market.