The lunar new Year break has only just ended and we are faced with yet more price increases. This means higher commodity prices, but also higher public utility rates, raising the price of water, electricity, gas and oil.
The government, responding to pressure from a public frustrated by the rising cost of living without any corresponding increase in salaries, has announced countermeasures. Taiwan Sugar Corp has said that, for the time being, sugar and salad oil prices will be frozen. The Ministry of Finance has announced it will halve the customs duty on commodities such as flour, and the Industrial Development Bureau has held talks with several trade associations, appealing to their sense of morality in the hope that they will keep profits reasonable, and not contribute to driving prices up further.
In addition, the Fair Trade Commission has approached certain companies and is monitoring the situation closely. Finally, the central bank is adopting a two-pronged approach to stabilizing prices, first by raising interest rates to restrict the money supply and secondly by artificially suppressing the exchange rate of the New Taiwan Dollar.
President Ma Ying-jeou (馬英九) called a ministerial meeting recently to discuss the problem. Shortly thereafter, the government declared war on inflation, promising heavy sanctions for speculators. These measures have been applauded in some quarters, but are unlikely to prevent prices rising further, and leave the government open to accusations of being heavy-handed.
More importantly, these price increases were predicted some time ago. We can expect a conspicuous rise in domestic production costs, driven by various international factors such as higher oil prices due to the unrest in Libya and the relentless increase in the cost of raw materials around the world. Such developments, known as cost-push or cost-input factors, will have an unavoidable knock-on effect on commodity prices.
Prices are generally decided by the forces of supply and demand. It is on the basis of these “true signals” that suppliers and users of goods and services make informed decisions. Prices are going up at the moment, and cost increases are affecting supply lines, but the actual scale of the increases is contingent on the demand side. Falling demand might suppress inflation or even cause prices to drop again.
Therefore, if inflationary pressure is predominantly demand-driven, what is termed demand-pull inflation, consumer behavior climbs into the driving seat. Basically, if consumers curb their spending, prices stabilize. The question is, will they?
This depends on whether a given commodity is considered indispensable, whether consumers have the money to buy it, the existence of a viable substitute and the extent to which that commodity is replaceable.
Another factor is the degree of free competition in the commodities market. The public utilities sector is traditionally the least competitive, and is therefore vulnerable to the emergence of monopolies, which is precisely why it is kept in the public sector. In principle at least, public utility prices should reflect actual costs, their remit being to operate in the interest of the public and to, as much as possible, keep prices down.
Public utilities companies are not known for being run particularly efficiently, and their costs are therefore quite high. Also, in Taiwan, the profitable ones are required by law to hand over any surplus to the national coffers. With no real incentive to keep prices down, why would they? The government should audit the business models of these companies. Although reducing customs duties to keep the market open and deregulated is the correct approach to controlling domestic commodity price rises, it should not be used merely as a tool to tweak the economy at will.
On closer analysis, the current wave of price increases, is related to the recent spate of natural disasters around the world and also to the efforts of certain countries to achieve economic growth. China, in particular, has adopted a resource-intensive model of growth that has devastated many resources.
In the final analysis, price rises are a monetary phenomenon, especially in the case of the feared inflation and asset bubbles, a result of the oversupply of money.
Consequently, if the government wants to stem the increase in prices, and perhaps even prevent inflation from rearing its ugly head, the most important thing is to keep a tight grip on the money supply. This is more important than opening up markets, deregulation and encouraging the flow of commodities.
Of course, it’s also important that the consumer doesn’t distort the market by panic buying or hoarding with a view to selling after prices peak. What the government absolutely must not do is try to control economic behavior.
Wu Hui-lin is a researcher at the Chung-Hua Institution for Economic Research.
TRANSLATED BY PAUL COOPER
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s
Can US dialogue and cooperation with the communist dictatorship in Beijing help avert a Taiwan Strait crisis? Or is US President Joe Biden playing into Chinese President Xi Jinping’s (習近平) hands? With America preoccupied with the wars in Europe and the Middle East, Biden is seeking better relations with Xi’s regime. The goal is to responsibly manage US-China competition and prevent unintended conflict, thereby hoping to create greater space for the two countries to work together in areas where their interests align. The existing wars have already stretched US military resources thin, and the last thing Biden wants is yet another war.
As Maldivian President Mohamed Muizzu’s party won by a landslide in Sunday’s parliamentary election, it is a good time to take another look at recent developments in the Maldivian foreign policy. While Muizzu has been promoting his “Maldives First” policy, the agenda seems to have lost sight of a number of factors. Contemporary Maldivian policy serves as a stark illustration of how a blend of missteps in public posturing, populist agendas and inattentive leadership can lead to diplomatic setbacks and damage a country’s long-term foreign policy priorities. Over the past few months, Maldivian foreign policy has entangled itself in playing
A group of Chinese Nationalist Party (KMT) lawmakers led by the party’s legislative caucus whip Fu Kun-chi (?) are to visit Beijing for four days this week, but some have questioned the timing and purpose of the visit, which demonstrates the KMT caucus’ increasing arrogance. Fu on Wednesday last week confirmed that following an invitation by Beijing, he would lead a group of lawmakers to China from Thursday to Sunday to discuss tourism and agricultural exports, but he refused to say whether they would meet with Chinese officials. That the visit is taking place during the legislative session and in the aftermath