Underestimate the Dangers of Inflation, and Pay the Price

Underestimate the Dangers of Inflation, and Pay the Price
China Times editorial (Taipei, Taiwan, ROC)
A Translation
June 24, 2008

International oil prices have skyrocketed from 100 USD a barrel at the beginning of this year to their current high of 140 USD a barrel. Although Saudi Arabia has agreed to increase production, oil prices will continue to rise. The entire world is faced with an inflationary crisis. Taiwan's Core Consumer Price Index (CPI) for May rose to its highest level in nine years. Its Consumer Confidence Index (CCI) fell to its lowest level in over seven years. Given prevailing public expectations, the Central Bank should take concrete action and demonstrate its determination to fight inflation.

Recently 30 major oil producing and consuming countries gathered in Jedda, Saudi Arabia, to discuss how to defuse the crisis in international oil prices. The largest oil-producing countries Saudi Arabia agreed to increase productivity beginning in July to 20 million barrels, from 9.7 million barrels per day. This is already the highest level of production since 1981, yet international crude oil futures prices continue to rise, with no signs of easing. Since 2000, international oil prices have increased 500 percent. Such a huge increase has led to comparable increases in fuel prices and other consumer product prices. Crop prices have increased several hundred percent. The impact on ordinary salaried workers has been horrific. The poor are having an even tougher time.

According to research from the Directorate General of Budget, Accounting and Statistics (DGBAS), the core CPI of 3. 23 percent in May established a new, nine-year high. In May the price of powdered milk, eggs and other foods increased by as much as 20%. The price impact on those who dine out has been as much as 10%. The May Consumer Confidence Index fell to a five-month low in 2007. With the new government's return to office, oil, electricity, and transportation costs have also risen. Public confidence in future prices is very low, Expectations of inflation are increasing.

When Ma took office, people genuinely expected to see better days. They did not expect international oil prices to shoot up further before the US subprime mortgage crisis took a turn for the better, the international political and economic situation became even riskier, and life became even harder. Under the impact of the US subprime mortgage crisis, global stock markets performed poorly. No one expected the once optimistic TAIEX to experience a 19 day losing streak. After the Ma administration took office, the global stock market hit bottom. People already suffering from rising prices found their funds frozen and their wallets shrunken. Many wondered whether the Ma Hsiao team had lost its magic touch. People expected the Old Hands of the Ma Hsiao team to take firm control. Increased fuel prices and electricity prices were intended to stimulate domestic demand. No one expected them to create problems, generate resentment, and trigger criticism.

In all fairness, Vice President Vincent Siew, Premier Liu Chao-hsuan, and Deputy Premier Chiu Cheng-hsiung held key positions during the Asian financial crisis 10 years ago, and have extensive practical experience dealing with financial crises. Today, 10 years later, the seriousness of the US subprime mortgage crisis has exceeded public expectations. Recently major Wall Street investment banks have been downsizing due to numerous losses. US stock markets have suffered a series of setbacks. The impact on Asian countries is gradually being felt. Most analysts never expected an Asian financial crisis, because Asian countries' economic structures are different from a decade ago. Many nations' economic and financial situation is sounder than 10 years ago, and should be able to cope.

Among the Asian countries only Vietnam is worrisome. A year ago Vietnam joined the World Trade Organization. It was the most attractive of the emerging batch of Southeast Asian tigers. Who knew one year later its status would change dramatically. Its stock market fell by 60%, real estate fell by 50 percent, and the exchange rate for their national currency is expected to depreciate by 30%. International credit rating companies blame the Vietnamese Central Bank's timid measures in response to inflation, set a poor example. In May this year, Vietnam's inflation rate touched off alarm bells. Consumer prices suddenly surged 25 percent, frightening away investors. Most analysts believe the Vietnamese Central Bank's interest rate increase was "too little, too late." This eventually resulted in runaway inflation. The main reason the Vietnamese Central Bank delayed raising interest rates was that political considerations outweighed all others. They worried that rate hikes would affect economic development. Indecisive wavering led to precisely the results they hoped against.

Vietnam's painful experience offers an object lesson for other Asian countries. If the authorities lack experience, and political considerations are foremost, a once stunning economic growth rate and investment environment will rapidly come undone. At the slightest rustling in the grass, and foreign investors who rushed to get in, will be the first to get out.

Taiwan's inflationary pressures are currently less serious than Vietnam's. Taiwan's economic structure is more mature than Vietnam's. But Vietnam's plight should not be taken lightly. Taiwan's economy relies primarily on exports. The NT dollar exchange rate increased this year by seven percent. To maintain export competitiveness, the banking sector thinks the central bank is unlikely to go all out by allowing the NT dollar exchange rate to float. Therefore raising interest rates has become a major tool to curb inflation. Over the past four years, the Central Bank has raised interest rates a total of 15 times. It has raised interest rates a total of 2.125 percent. But banks actually raised interest rates by only one percentage point. In fact, the impact was very limited.

Taiwan relies on imported gasoline. It is currently experiencing its most serious inflation in a decade. Taiwan's interest rates are low by Asian standards. If the Central Bank fails to show greater determination in its fight against inflation, if it worries about its every move, the consequences will be catastrophic.

中時電子報
中國時報 　2008.06.24
低估通膨危機勢將後患無窮
中時社論

　國際油價自今年初一百美元狂飆逼近一四○美元歷史新高，儘管沙烏地阿拉伯同意增產，卻無法抑制油價繼續上漲，全球籠罩通膨危機。五月份台灣的核心物價年增率達到九年來最高，消費者信心指數跌至七年多以來新低，民間普遍存在物價上漲的預期心理下，央行確實應以實際行動展現對抗通膨的決心。

　最近卅個主要石油生產與消費國齊聚沙國的吉達，商討如何化解國際油價狂飆危機，雖然最大石油生產國沙烏地阿拉伯同意自七月起增加產能廿萬桶至每日九百七十萬桶，這已是一九八一年以來最高的產能，但國際原油期貨價格仍持續上漲，沒有舒緩的跡象。自二千年以來，國際原油價格上漲了五倍，如此巨大的增幅，已帶動其他燃油與民生物品、農作物價格高漲數倍，對於一般薪水階級衝擊非常大，窮人的日子更苦了。

　根據主計處調查，五月核心物價年增率達三．二三％，創九年新高，五月份的奶粉、雞蛋等食品價格漲幅高達二成，外食族受到的影響也高達一成。此外，五月份消費者信心指數跌到七年五個月新低，加上新政府上台後，油、電、交通等價格紛紛調漲，民眾對未來的物價信心非常低，對通膨的預期心理越來越濃厚。

　馬政府上台後，民眾殷切期盼會有好日子，未料，美國次級房貸風暴未能好轉，國際油價甚至進一步飆漲，國際政經局勢更加險峻，日子似乎變得更苦了。受到美國次級房貸風暴影響，全球股市表現均不佳，未料先前一路看好的台股連跌十九天，自馬政府上台以來的表現在全球股市敬陪末座。原本已飽受物價上漲之苦的民眾，如今資金慘遭套牢，且荷包大幅縮水，許多人不禁質疑，馬蕭團隊難道今不如昔？原本預期馬蕭團隊「老將」上場後，一切駕輕就熟，未料，從油、電公共費率的調整到擴大內需方案的推動，破綻百出，更引發外界不滿與批評聲浪。

　平心而論，從副總統蕭萬長、行政院長劉兆玄、副院長邱正雄等人在十年前的亞洲金融風暴期間均擔任要職，對於處理金融危機有豐富的實務經驗。十年後的今天，雖然美國次貸風暴的威力超乎各界預期，最近華爾街的大型投資銀行由於虧損累累，紛紛掀起裁員風，美股連連重挫，對亞洲各國的影響逐漸顯現，但一般認為亞洲還不至於發生金融危機，原因是亞洲各國的經濟結構已不同於十年前，許多國家的經濟與金融情勢均比十年前穩健，應有足夠能力因應。

　亞洲各國中唯一令人憂慮的是越南，一年前越南加入世界貿易組織，曾是東南亞最亮眼的新興小虎，不料，一年後，情勢急轉而下，股市跌了六成，房地產跌了五成，匯率預期還要貶值三成，國際信評公司歸咎於越南央行因應通膨的措施瞻前顧後，做了錯誤示範。今年五月越南的通膨亮起紅燈，消費者物價年增率突然竄升至廿五％，嚇壞了投資人，一般認為越南央行升息的動作太慢且力道太小，最後導致通膨問題一發不可收拾。進一步探究越南央行遲遲不敢升息的主因，不外乎是政治考量重於一切，擔憂升息會影響經濟發展，猶豫不決的結果適得其反。

　越南的慘痛經驗提供亞洲各國最佳的借鏡，如果執政當局缺乏經驗，一切以政治考量為依歸，原本閃亮的經濟成長與投資環境很快就會大逆轉，外資當年一窩蜂搶進，然而一有風吹草動，外資跑得也最快。

　目前台灣的通膨壓力雖然不如越南那麼嚴重，台灣的經濟結構也比越南成熟許多，但亦不能掉以輕心。台灣的經濟主要依賴出口這個單引擎，新台幣匯率今年以來升值幅度約七％，在維持出口競爭力心態下，銀行界預期央行不太可能放手讓新台幣匯率大升，因此以升息抑制通膨成為主要的工具。過去四年來，央行共升息十五次，幅度約二．一二五個百分點，但銀行利率實際拉升的幅度只有一個百分點，成效其實非常有限。

　台灣的汽油完全依賴進口，目前所面臨的通膨問題是十年來最嚴峻的情勢，加上台灣的利率在亞洲各國中是超低水準，如果央行在對抗通膨方面未能展現較大的決心，或是瞻前顧後，將引發無窮後患。