Sun, Nov 10, 2013 - Page 8 News List

Economy seems to be losing steam

By Norman Yin 殷乃平

The structural changes in the CPI and the WPI shows us that the price of daily necessities are increasing quite substantially although the price index average remains low, making it clear that the prices of products other than daily necessities are dropping. It can thus be inferred that as the cost of daily necessities is increasing, family budgets come under pressure, with the result that the consumption of other products is going down, causing their prices to drop. This makes it clear that the stagnated private consumption over the past few years is connected to the level of commodity prices.

Current government policy, such as increases in the National Health Insurance premium and oil and energy prices, is aggravating the situation and putting even more pressure on domestic demand. If we also consider the falling average real monthly incomes and the increasingly imbalanced income distribution, it is easy to see that the price increases will affect different income groups differently and generally have a greater impact on low-income households than on high-income households. If in the long run, everyone refrains from consumption and starts holding on to their money, Taiwan’s economy will end up in the same situation that Japan was in during its “lost decade.”

Exports are declining and domestic demand is anemic. In the short term, it will be difficult to improve Taiwan’s economy, and the public will have to tighten their belts further.

Norman Yin is a professor of financial studies at National Chengchi University.

Translated by Perry Svensson

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