While Taiwan is enjoying steady economic growth thanks to stable exports and domestic investment, its consumer price index (CPI) is also increasing, due to rising prices for vegetables, fruit, meat, imported fuel and airfare.
Last week, the Directorate-General of Budget, Accounting and Statistics (DGBAS) reported that the CPI last month rose 2.63 percent year-on-year — the highest increase since March 2013. In the first nine months of this year, the index exceeded the government’s 2 percent target during four months, raising concerns of accelerated price pressure.
However, over the whole nine months, the CPI only rose 1.74 percent, and the DGBAS said that last month’s increase was mainly due to a higher comparison basis in the same month last year, as well as increased consumption related to the Mid-Autumn Festival holiday, implying a deceleration in the inflation reading’s increase.
As many daily necessities have become more expensive, the public has reason for concern. For example, among the costs that the government found most concerning, the prices of 17 essential household items last month soared 3.31 percent annually — the highest in three years — with the prices of pork, soy sauce, cooking oil and toothpaste rising more than 5 percent.
Core CPI — which excludes items with especially volatile prices, such as food and energy — showed a stronger-than-expected rise last month, gaining 1.74 percent from a year earlier, the biggest annual increase since March 2018.
As core CPI is a major gauge of inflationary risk and indicates trends in consumer prices, its continued increase after rising 1.24 percent in July and 1.32 percent in August suggests that inflationary risk is building and that price pressure is expanding to non-volatile consumer goods.
The rising energy costs in last month’s index signaled that Taiwan is experiencing the effects of imported inflation. The government should carefully monitor whether the upturn in domestic inflation persists or even gains traction.
Over the past few months, import prices have risen by about 20 percent annually — the highest in nearly 10 years — driven by soaring prices for raw materials. This signals that the government also needs to monitor import prices to better address inflationary pressure on consumer prices.
The government can attempt to rein in imported inflation by pushing up the value of the New Taiwan dollar or demanding that state-run companies — such as CPC Corp, Taiwan, or Taiwan Power Co — partly absorb cost increases.
However, household expenses for water, electricity, liquefied natural gas and liquefied petroleum gas only make up 20 percent of the CPI. The remaining 80 percent is directly or indirectly affected by international energy prices, with the degree of the impact depending on market competition, as well as supply and demand.
While efforts to reduce carbon emissions have countries worldwide shifting from coal to natural gas, soaring coal and natural gas prices in China and Europe have produced an electricity crisis, with high prices or insufficient supply. As crude oil, coal and natural gas are crucial to the global energy supply — accounting for 31 percent, 27 percent and 23 percent respectively, according to Bloomberg data — energy-stoked inflation could accelerate if supply cannot be significantly increased in the short term.
It remains to be seen whether the surge in energy prices will trigger a new global energy crisis, but to the global economy, the surge could be a “black swan” event — something that cannot be predicted, but has profound consequences on markets — with inflationary pressure worldwide reaching a critical mass and producing the most devastating black swan of the post-COVID-19 pandemic period.
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