The US Federal Reserve last week released the minutes of last month’s policy meeting, which clearly showed the central bank’s inflation concerns. Then came the latest US consumer price index (CPI) released earlier this month, which showed that US headline inflation surged 7.5 percent year-on-year last month, the steepest increase in more than 40 years. Meanwhile, core CPI, which excludes volatile items such as food and energy, also rose 0.6 percent last month, another record increase. The CPI data added more pressure on the Fed to get ahead of the curve on inflation, and the more pressing issue now is how far and how fast it would raise interest rates.
In Taiwan, CPI also unexpectedly accelerated for a sixth straight month last month, highlighting a trend of rising living expenses that is set to continue this year. Annual headline CPI growth came to 2.84 percent last month, a nearly nine-year high, while the core CPI growth also quickened to a 13-year high of 2.42 percent, data from the Directorate-General of Budget, Accounting and Statistics (DGBAS) showed.
Given that many daily necessities have become more expensive, the public has reason for concern. Among the costs most concerning to Taiwanese, food prices rose 3.75 percent from one year earlier, with fruit prices surging 21.41 percent and egg prices rising 18.38 percent, while fishery items increased 5.28 percent, meat products 4.76 percent and bread 4.4 percent. Moreover, dining-out expenses were up 3.87 percent from a year earlier, the highest growth since January 2015, the data showed.
The DGBAS is seemingly not concerned about CPI running at its current level, saying that mild inflation is beneficial for economic growth, the theory being that people tend to buy now rather than later when they expect prices to continue rising. This could boost demand in the short term and encourage businesses to hire more workers and produce more to meet demand, thus creating a virtuous cycle that boosts economic growth.
However, the current CPI trend has hit households and is affecting consumers’ purchasing power, especially low and middle-income families. While the nation’s economy expanded 6.28 percent last year, average regular wages last year contracted 0.04 percent, the first retreat in five years, as faster increases in consumer prices wiped out wage gains, DGBAS data showed last week.
The government has so far adopted several measures to help ease the pressure on price increases, such as temporarily halting business taxes on imported corn, wheat and soybeans, halving import tariffs on butter and milk powder, reducing commodity taxes on gasoline and diesel, and investigating allegations of price gouging and hoarding in the food and beverage sector.
However, it remains unknown whether businesses might pass the benefits of tax cuts on to consumers, and if hoarding and price gouging are being curbed effectively by the government’s efforts.
The government should adopt more thorough, comprehensive measures to curb hoarding and price gouging, as well as price fixing and business collusion. While certain items can go up or down in retail cost — such as energy, vegetables and fruit — most grocery and restaurant prices tend to go up easily, but not down.
If prices of too many goods exhibit such “sticky down” characteristics, anger and resentment toward businesses and the government could follow. Moreover, if such a price rigidity is here to stay, if costs of raw materials sourced internationally drop, and if supply and demand in the market return to normal, retail prices are unlikely to be adjusted downward. Without necessary and timely government measures in place, consumer prices would take an unreasonably long time to fall, and consumers would feel they are being exploited.
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