TAIPEI (Taiwan News) — The Central Bank of Taiwan said on Tuesday (March 26) that an increase in electricity rates will increase the consumer price index (CPI).

Following the announcement on Friday (March 22) that the government will raise electricity prices by an average of 11% starting on April 1, the Central Bank issued a report about the bank’s interest rate, per CNA. The bank will deliver the report to the Financial Committee of the Legislative Yuan on Wednesday (March 27).

The Central Bank said that if the inflation rate remains high, consumers will feel a stronger overall price increase, and businesses will be more inclined to raise prices to maintain profit margins. Once the public starts to worry about high inflation, it will be detrimental to fighting high inflation expectations, which will not be conducive to price stability, it said.

In response, the Central Bank said it decided to raise its interest rate on Thursday (March 21), in consideration that the electricity price hike may lead to higher inflation expectations. The move is expected to promote price stability, the bank explained.

The Central Bank also said that industrial production costs will increase, which may be passed on to consumers. It is estimated that the indirect impact on the annual CPI growth rate will be about 0.23%, it added.

However, the Central Bank said that in response to domestic price fluctuations, the government has established a cross-departmental task force and implemented supply-side measures to stabilize the prices of bulk commodities. “This initiative will help alleviate fluctuations in energy and food prices, contributing to price stability. Additionally, it is expected that this year’s inflation rate will maintain a gradual downward trend,” the bank said.