TAIPEI (Reuters) -- Taiwan's inflation cooled in August, with the consumer price index (CPI) up 2.66% from a year earlier, an unexpectedly gentler reading and a trend likely to continue, giving the central bank more flexibility on when to raise interest rates.
The pace slowed from a 3.36% year-on-year reading for July, the Directorate General of Budget, Accounting and Statistics said in a statement on Tuesday.
It was the lowest reading in half a year and the first time it had risen below 3% in five months. In a Reuters poll of 12 economists, the CPI was seen rising 3.05% from a year earlier.
Directorate official Tsao Chih-hung told reporters inflation had probably peaked in the second quarter and going forward price pressures would gradually ease, adding September's CPI reading was likely to be similar to August's.
Core CPI, a better measure of underlying price pressures, rose an on-year 2.73% last month, the same reading as in July. It excludes more volatile energy, vegetable and fruit prices.
The statistics office revised its 2022 inflation outlook higher last month. It said it saw 2022 consumer prices 2.92% higher than last year, compared with a previously forecast rise of 2.67%, though it added that 2023 would show an increase of just 1.72%.
Price pressures, however, are still more moderate than in the United States and Europe.
Taiwan's central bank raised its policy rate in June for the second time this year, by 12.5 basis points to 1.25%, reflecting concerns about quickening inflation, and also trimmed the trade-reliant island's growth outlook for 2022. It is due to hold its next quarterly rate-setting meeting on Sept. 22.
Analysts expect more modest rate hikes in the second half of the year.
Kevin Wang, an economist at Taishin Securities Investment Advisory Co, said he expected another similar rate hike in September.
"If the economic performance is not as expected, then the central bank may not raise interest rates in December," he added, referring to its final quarterly meeting of the year.