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CommonWealth Finance Weekly

Is Zero Consumer Inflation a Good Thing?

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Is Zero Consumer Inflation a Good Thing?

Source:Chung Wei-Shih

Consumer inflation has grown at a miniscule 0.2% since the beginning of this year. Even the Chinese New Year in February, which is commonly associated with shopping frenzy and soaring prices, failed to make more than a bump. Declining consumer confidence and decreasing exports indicate Taiwan may be at risk of heading into a recession.

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Is Zero Consumer Inflation a Good Thing?

By Brian Chen
web only

On April 10th, the Directorate-General of Budget, Accounting and Statistics, a branch of the Executive Yuan, published the consumer price index for March of 2019.

Consumer inflation has grown at a miniscule 0.2% since the beginning of this year. Even the Chinese New Year in February, which is commonly associated with shopping frenzy and soaring prices, failed to make more than a bump. Declining consumer confidence and decreasing exports indicate Taiwan may be at risk of heading into a recession.

Stagnant Consumer Inflation and the Risk of Recession

The expanding economy in the first half of 2018 caused consumer inflation to grow steadily at 2% for the first three quarters of that year. But things slowed during the second half, after which inflation rate went into free fall. Consumer prices have just about stopped increasing; shouldn’t this be good news for the average Taiwanese person, whose earnings have stagnated for far longer?

Don’t break out the party hats yet. Declining consumer inflation rate is indicative of a slowing economy. In such a climate, companies stop hiring; unemployment rate rises. People cling to what jobs they have and wages remain stagnate.

Have you read? More on stagnante wages in Taiwan:
♦ No Longer an Asian Tiger?
How Cheap Must Taiwanese Workers Get?
♦ Chronicling a 20-Year Decline

A tanking inflation rate will also limit the scope and efficacy of monetary policies put forth by the Central Bank. As the opportunity cost of keeping your money in the bank becomes less, hot money leaks out of the market and investments stall, further stymying the stimulating effect of any monetary policy.

In Taiwan, the annual rate of consumer inflation has not surpassed 1.5% since 2013. Since September 25th of 2015, the Central Bank’s monetary policy has been designed to lower rather than raise interest rates.

This means for the past couple of years, the Taiwanese economy has floundered despite the gradual economic upswing enjoyed by the rest of the world.

And in the first two months of this year, regardless of all the bonuses handed out at year-end banquets, and all the shops stocked with holiday goodies, inflation rate remained a flat 0.2%. Purchase intention is still demoralizingly low.

If consumer confidence does not pick up, the cost of living may not just remain the same; consumer prices may begin to drop as our economy heads toward a recession.

If Taiwan heads into a recession even as the global economy is still facing an uphill battle, corporations may find both foreign and domestic markets shriveling up. Profits will nosedive, and we may very well descend into a vicious cycle where shrinking profits carve a chunk out of our salaries, which in turn causes consumption to wane and drives the receding economy every closer to the brink of a depression.

Inflation Rate in Taiwan Stagnant Since November 2018Data source: Directorate-General of Budget, Accounting and Statistics

Translated by Jack C.
Edited by Sharon Tseng

Keywords:

好友人數