Cabinet introduces measures to stabilize consumer prices

This article was published by the Microview Weekly on August 8, 2007. It reports that the government in Taiwan recently announced six new measures to stabilize prices, including a halving of tariffs on seven imported commodities for six months and a “thorough re-examination” of the floating price system for fuel products.

Government officials claimed that the fundamentals of the Taiwan economy were firm, citing vibrant rises in export orders and merchandise exports, a strong rise in industrial production, a reduction of unemployment to a seven-year low of 3.86 percent in the first half of 2007, stable consumer prices and a strong rise in the stock market and reviving private consumption.

According to officials, the Council for Economic Planning and development's monthly package of economic health indicators had returned to the “green” for stable expansion in June 2007. The CEPD judged the economy to be in a condition of “firm and stable expansion' and could reach an inflation-adjusted expansion of 4.38 percent in 2007.

However, the government has the responsibility to take action to ease inflationary pressure. Officials cited a sharp 7.11 percent rise in the wholesale price index during the first half of he year, which was due to soaring world prices for crude oil, primary metals and grains, such as durum wheat and soybeans.

Although consumer prices remain stable with a 0.61 percent rise in the consumer price index during the first six months of the year, government officials cautioned that prices for a range of essential consumer products had already begun to be affected.

In the short term, pressure for continued increases in the global price levels of crude oil and bulk commodity prices would persist.

In order to ease these problems, the government called on the Ministry of Economic Affairs to conduct a “thorough review” of the floating fuel oil product pricing system, aiming to “respect the market mechanisms and avoid the stimulation of price inflation due to adjustments in petroleum product prices”.

Secondly, the government asked the finance ministry to draft a plan to implement the halving of tariffs for seven major commodities, namely durum wheat, wheat flour, groats and wheatmeal, corn for feed, cornflour, corn distillers grain and soybeans.

The government also instructed the MOEA and the Fair trade commission to closely monitor the prices of major raw materials and consumer products to check for any abnormal fluctuations and bring to justice persons or agencies that engage in hoarding or manipulating prices.

The government further asked the MOEA's “Raw Materials Supply and Demand coordination Task Force” to adopt necessary measures to control or restrict exports of essential goods (such as steel, petroleum products, waste paper and gravel) if prices rise too steeply.

MOEA officials announced plans to ban the export of processed waste paper from Taiwan, in order to help stabilize paper prices on the domestic market. This move was a reaction to the shortage of paper materials as a result of brisk exports of processed waste paper, which was caused by attempts by local exporters to take advantage of soaring global prices.

The government also called on the MOEA to accelerate efforts to promote energy conservation, enhance energy use efficiency and step up the development of renewable energy and other new energy sources, in order to ease demand for fuel oil and thus ease the long-term pressure of rising oil prices.

CEPD officials related that the tariff cuts would lead to the loss of only between NT$200 million to NT$300 million in tax revenue, but “the reductions would be concentrated in seven special product areas that would help importers control prices”.

Officials added that the halved tariffs would only be in effect for six months “as we need to see whether prices return to normal”. Domestic producers of wheat flour, corn and other goods “also need to be protected”.

CEPD officials said that the decision to “re-examine” the floating fuel price mechanism would continue to remain on the basis of “respect for the market mechanism”. They added that “the system is still in effect”.