Figures prove it: the economy's OK
By Tu Jenn-Hwa 杜震華
Wednesday, Nov 14, 2007, Page 8
The Directorate General of Budget, Accounting and Statistics has publicized Taiwan's commodity price index for last month, indicating an increase in commodity prices of 5.34 percent compared with the same period last year.
The highest figure since 1994, it shows that complaints from the public about rising prices are not a media construct. However, the average consumer price increase from January to last month was in fact no more than 1.35 percent, while wholesale prices for the same period increased by 6.05 percent , so it is in fact wholesalers and retailers that have suffered most from price increases, and not consumers.
If Taiwanese consumer prices indeed do increase by the 1.7 percent predicted by the IMF for this year -- less than South Korea's 3 percent -- that would actually be considered quite stable from an international perspective.
The fact is that according to the IMF's predictions last month for annual international consumer price increases, Taiwan's outlook is excellent. Taiwan's 1.7 percent is lower than the 2.4 percent average of high income countries, and Taiwan ranks fifth among 30 countries. It is also much lower than central and eastern Europe's 4.7 percent, developing South America's 5.4 percent, developing Asia's 5.7 percent, Africa's 6.5 percent, the Commonwealth of Independent States' 8.8 percent and the Middle East's 9.9 percent.
In addition, the economic growth for three of the four countries with lower price increases than Taiwan -- Finland, Japan and Switzerland -- is forecast at less than 2 percent. Taking all these factors into consideration, the forecast for Taiwanese consumer prices may be the best among all the world's high income countries.
The fact that the government has not been able to bring forward this information in response to public concerns borders on dereliction of duty. It is time that bureaucrats increased their efforts to get the word out.
The three countries with the best consumer price outlook according to the IMF's forecast are Cape Verde, with a forecast increase of 0.2 percent; Burkina Faso, 0.5 percent; and Niger, 0.9 percent. These are all "fourth world" African states that are very likely to have low resource use and low inflation. The three states with the highest inflation are Eritrea at 25.6 percent, Chad at 21 percent, and Azerbaijan at 20 percent. The Eritrean economy is strictly regulated and almost no imports are allowed, while the other two are oil producing states which have been unable to match the sudden increase in oil production with matching measures, resulting in an inability to maintain consumer price stability and normal growth, a phenomenon that has been called "Dutch disease."
So are Taiwanese consumer price developments this year especially outstanding? The fact is that price stability is a good Taiwanese tradition. IMF data show that between 1989 and 1998 and between 1999 to next year -- the last two years are forecasts -- annual consumer price increases in Taiwan were 3.3 percent and 0.8 percent, respectively. Although this is higher than Singapore's 2.2 percent and 0.9 percent for the same two periods, it is much lower than South Korea at 6.2 percent and 7.2 percent, and it could also be said to be lower than Hong Kong at 8.3 percent and ? 0.7 percent. The 0.8 percent annual increase for the period 1999 to next year is higher than only Hong Kong and Japan among the 30 high income countries, so Taiwan is in fact one of the top performers.
The obvious increase in Taiwanese consumer prices during last month does not imply that local prices have been on the high side for an extended period of time. This is also the main reason why Taiwan's purchasing power and average income clearly surpasses that of South Korea by more than 20 percent. Taiwan's outstanding past performance is a result of the government's emphasis on consumer prices, active opening of foreign trade and abolishment of protectionist policies.
The government lacks experience in dealing with inflation, and although the reaction to last month's increase may have been a bit slow, the government is likely to quickly learn its lesson. The next issue should be to establish a mechanism for quickly predicting and following up on price movements, which would help farmers avoid the drastic changes in vegetable prices and effectively deal with pricemanipulating middlemen. In today's developed world, the government will never be at a loss for what to do as long as it really wants to act.
Tu Jenn-hwa is an associate professor at National Taiwan University's Graduate Institute of National Development.
Translated by Perry Svensson
