The recent surge in global crude oil prices amid heightened tensions between Iran and the West prompted Taiwan’s two oil refiners to raise domestic fuel prices this week to their highest levels in seven months. Coupled with the rising costs of imported commodities and raw materials, this looks set to increase inflation in the short term.
If the instability in global oil markets gets worse, inflation might rise above the government’s target. Moreover, rising prices could curb consumer spending, just as the nation’s economy is about to rebound.
CPC Corp, Taiwan, the state-run refiner, on Thursday announced it would raise prices for liquefied petroleum gas and liquefied natural gas, for the second consecutive month. Rising fuel costs will pose an obstacle to the government’s proposed energy tax, a move it hopes will expand the tax base and enhance energy efficiency.
Tomorrow, the Directorate-General of Budget, Accounting and Statistics (DGBAS) will release consumer price index (CPI) data for last month. Although the CPI, a benchmark inflation figure, is likely to have slowed from the 2.37 percent annual increase in January because of lower vegetable prices and reduced travel spending after the Lunar New Year holiday, rising crude oil prices will have a far-reaching impact on the global economy this year, and Taiwan should be no exception.
On a positive note, according the DGBAS, the CPI is likely to increase by only 1.29 percent for the whole of this year, which would make Taiwan one of the Asian economies least affected by inflation this year. However, the public does have reason for concern, as many daily necessities have become more expensive because of rising raw material costs.
A recent Consumers’ Foundation survey of the prices of flour, eggs, cooking oil, instant noodles and shampoo between January 2010 and December last year provides a useful reference, as it shows prices of these basic commodities have risen by between 5 and 30 percent over the period.
Despite government noise about falling inflation rates, consumers are well aware that such basic goods have become more expensive, undercutting their purchasing power at a time of stagnating wages. Poorer families have been hardest hit, as the main items on their shopping list are foodstuffs and daily necessities, rather than the travel expenses, education fees, entertainment and other discretionary spending that concerns wealthier families.
The government has lowered import tariffs, provided fuel subsidies and allowed the New Taiwan dollar to appreciate to partially offset the price rises in imported commodities, but it is still under fire for its limited efforts to alleviate people’s financial pain. The government should be paying more attention to the alleged anti-competitive pricing tactics adopted by retailers, and whether suppliers, distributors and wholesalers of goods and services are exploiting consumers by hoarding products to raise prices.
Instead of reassuring the public with statistics that show inflation is close to zero, while people know that some daily necessities have increased in cost by up to 30 percent in the past year, the government would be better advised to develop a fairer and more transparent market. If the public is informed about the latest price changes in an accurate and timely fashion, people would have a better idea of how they personally can minimize the impact of rising prices.
The continued monetary easing in advanced economies looks set to exacerbate the current cost-push inflation environment, with rising energy and raw material costs. The government must remain vigilant against further price pressure and take into account both international and domestic factors, as well as long and short-term considerations, if it is to offer more effective price stabilization measures.
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