Taiwan's industrial production up a measly 0.8% in October

Here's what surprised analyst.

According to DBS, yesterday’s data release showed that industrial production rose a modest 0.8% YoY (0.4% MoM sa) in October, basically in line with expectations. The surprise mainly came from retail sales, which posted a strong gain of 3.6% YoY (1.6% MoM sa) in October, sustaining the underlying uptrend for the fifth consecutive month.

Here's more:

More encouragingly, the rise in retail sales was largely driven by durable goods, including household appliances (15.4% YoY) and automobiles & motorcycles (14.4% YoY).

Fundamentally speaking, real wages growth has returned to the positive territory since 3Q thanks to the recent fall in inflation. As a result of the government’s hike of fuel and electricity prices last year, the supply-side inflation surged and real incomes deteriorated over the past one year from 2Q12 to 2Q13.

Inflation is currently normalizing and falling back towards the long-term trend, helped not only by the base effects, but also by the actual declines in global oil prices. The recovery in purchasing power and the release of pent-up demand have boosted consumption growth and are expected to continue doing so in the next few quarters.

Meanwhile, sentiment has also improved. The consumer confidence index has reverted to the level last seen in Apr12 when domestic fuel price hike was implemented. The subindex for durable goods spending has risen above the neutral mark of 100 in October, for the first time over two years.

Confidence has also fully recovered from the market volatility this summer triggered by the talk of US’s QE tapering. While the tapering talk will remain as a disturbing factor, the impact on Taiwan is expected to be small, thanks to the economy’s low reliance on USD financing and a strong international liquidity position.