The obvious increase in Taiwanese consumer prices during last month does not imply that local prices have been on the high side for an extended period of time. This is also the main reason why Taiwan's purchasing power and average income clearly surpasses that of South Korea by more than 20 percent. Taiwan's outstanding past performance is a result of the government's emphasis on consumer prices, active opening of foreign trade and abolishment of protectionist policies.
The government lacks experience in dealing with inflation, and although the reaction to last month's increase may have been a bit slow, the government is likely to quickly learn its lesson. The next issue should be to establish a mechanism for quickly predicting and following up on price movements, which would help farmers avoid the drastic changes in vegetable prices and effectively deal with pricemanipulating middlemen. In today's developed world, the government will never be at a loss for what to do as long as it really wants to act.
Tu Jenn-hwa is an associate professor at National Taiwan University's Graduate Institute of National Development.
Translated by Perry Svensson
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