Taiwan and China are back together exploring for oil in the Taiwan Straits, according to recent news reports. And United Daily News (UDN), a paper tightly linked to the KMT, reported that Hu of China had invited President-elect Ma to China for talks. The Olympics is going to make a great backdrop to the visit that Ma promised he wouldn't be making...though KMT officials themselves dismissed such talk. Direct flights aren't expected until next year. Whatever the inflated expectations of some, reality is expected to move more slowly......but not prices. Sticker shock: went to our usual volume retailer the other day, only to find that the bag of wheat flour we used to buy for $38 is now $53. Gasoline is outrageous -- we take scooters everywhere now. Imported stuff is skyrocketing -- brie I used to enjoy at $99 is now $189, cheap smoked processed cheese from Germany rose from $125 to $165 at the local supermarket. The Central bank said inflation was near 4% in both Feb and March of this year...
One solution to the problem of inflation is to let the NT dollar gain in value. For most of the ROC's brief existence on Taiwan the NT dollar has been more or less pegged to the US dollar. Indeed, last week Goldman Sachs predicted the NT would continue to rise:
The New Taiwan dollar may advance to an 11-year high in six months as the central bank allows further gains to stem inflation, Goldman Sachs Group Inc said, raising its forecast for the currency.
The NT dollar may strengthen 6.3 percent to NT$28.5, the world’s biggest securities firm said, revising its earlier forecast of NT$30.50. The currency has advanced 6.4 percent in the past three months, the best among 10 most-active currencies in Asia outside Japan.
“The central bank will likely utilize currency appreciation as another policy tool in combating imported inflation,” Goldman’s research team led by London-based Jim O’Neill wrote in a monthly global report received by Bloomberg today. “The interest-rate differential vis-a-vis the US dollar has become more favorable.”
Letting NT rise would be a quick way to increase the purchasing power of Taiwanese and enable locals to feel they have more money in their pockets. It would make imported goods cheaper. The negative side, of course, is that it makes Taiwan goods more expensive in world markets, forcing exporters to slash costs or move. It also has another pernicious effect, noted last week in a long commentary in the Taipei Times:
Even more serious is that when the nation’s currency appreciates against the US dollar, government and private assets denominated in US dollars suffer from exchange loss with their decrease in value.
Inflation may well become the number 1 challenge for the incoming Ma administration, since the current government has announced that price freezes on gas and electricity will be lifted on May 20, the day Ma is sworn in.
[Taiwan]
4 comments:
Michael, I know almost nothing about the laws of economics that govern these things... You obviously know more. Which brings me to ask you this question. Why is it, then, that here in Canada, we are having similar increases, or BOTH prices and the value of the dollar? (the prices are so astronomical that I just can't afford to live here anymore). Is it because commodities have gained? That's what they saw on the stock reports of the national and local news reports, etc. But all the commodities are in Alberta. The only thing that we have that is really new and that desirable, expensive, etc. at the moment is oil. Other than that, these days we are mainly in the service industry and IT biz.
Does the same thing go for Taiwan? When Sharon told me on the phone recently that buying a meal at an outdoor stand in Miaoli now costs 45 dollars, as opposed to what the same thing cost a few months ago, which was around 30 dollars, I thought that maybe it was just one or two things, or just maybe the impression that she was getting, not the entire picture. It sounds a little (more than a little worrisome).
The NT dollar is actually going up. You say that would be a good thing, as if it is an ideal that is not actually in process. So what gives? Please explain. I know so little about this stuff. Perhaps it would be really helpful for more people to know how such things work, and not just the Alan Greenspans of the world.
Not questions I can answer in a comment, man! Chat on gmail next time!
sir, is it Taiwan Straits or Taiwan Strait? Last time I dipped my feet into that body of water, it was singular. but I do think the Brits use straits instead of strait, while the Yanks use strait instead of straits. Are you a Brit?
Inflation seems to be a huge problem everywhere now. There was an article in the SCMP today about salaries not matching the inflation rate.... 4% pay raises in Jan. as opposed to a 6% inflation rate. Macau's rate of inflation was over 9%, according to another article.
Then there is the mainland. Then there is Canada. Then there is the US. Everywhere, prices are rising. And nobody seems to really know what to do about it. Magical Ma should indeed worry.
Post a Comment