The rich-poor gap
The gap between people's perceptions and the CPI also varies according to income.
Generally speaking, if the CPI rises but incomes keep up, the public won't experience much suffering. In recent years, however, incomes have not been keeping pace with the cost of living. Chart II shows the gradual decline in real wage growth in manufacturing and services from 1991 to 2006, with some years even showing negative growth, previously a rare occurrence. With real wage growth moderating, even slight rises in the CPI can hit people's living standards.
From 1996 to 2006, average household disposable income in Taiwan increased 10.5%, but over the same period the CPI rose 8.3%. Thus the average household's income should have grown enough to cover the increase in prices.
But when you split household disposable income into five income quintiles (Chart III), you discover that the top 60% of households saw their incomes rise faster than the CPI. Moreover, the higher the income, the greater the growth. But the lowest 40% of households experienced the opposite, with the bottom income quintile seeing incomes rise less than 2% during the period. Consequently, the 8.3% rise in the CPI is an unbearable weight that has caused a drop in these families' real income. This illustrates the hit that lower-income families take when the CPI rises.
With regard to household expenditures (see Chart IV), households in the lowest income quintile spent 24% of their income on food, whereas those in the highest quintile spent 12%. For housing and electricity the lowest and highest quintiles spent 26% and 12% respectively, and for healthcare they spent 18% and 8%. But food and health were the categories of the CPI that experienced the biggest jumps in recent years, in particular for such items as eggs (an important nutritional item for poor people), which went up 54%, and fruit and vegetables, which went up 56%. As a consequence, the food products that the poor need the most went up most in price. Moreover, food and healthcare products are necessities that can't be cut back on much. The greatly different impact of rising prices on the rich and the poor has set off alarm bells. Consequently, the government has implemented various programs in recent years with the aim of helping the poor meet their basic needs.
Beyond the CPI
There are several reasons behind the rise in prices over the past few years. The economic rise of China, India and Russia has led to a growing demand for raw materials, which in turn has led to global shortages. And international financial speculations on oil and related products have also pushed prices up.
And behind these factors is a long-term trend: the gradual depletion of oil reserves. Some experts have declared that at current rates all the known oil in the world will be used up in 40 years. The trend of a rising price of oil thus seems hard to avoid.
We are hearing the death knell of the century of oil. The model of making rapid economic growth from low-cost goods that rely on cheap energy and petrochemicals is coming to an end. The working folk first affected by this change must carefully consider their purchases and tighten their purse strings, and together we all must consider what future path to take.
Chart III: Household disposable income (1996-2006)
Year |
Average disposable income per household |
Average disposable income per household by quintile |
Consumer Price Index |
1 |
2 |
3 |
4 |
5 |
1996 |
82.6 |
29.8 |
53.7 |
72.3 |
96.6 |
160.7 |
96.10 |
1997 |
86.3 |
31.2 |
55.7 |
75.4 |
100.4 |
169.0 |
96.96 |
1998 |
87.3 |
31.1 |
56.1 |
76.5 |
101.5 |
171.4 |
98.60 |
1999 |
88.9 |
31.7 |
57.4 |
77.8 |
103.2 |
174.4 |
98.77 |
2000 |
89.1 |
31.5 |
57.1 |
77.9 |
104.4 |
174.9 |
100.01 |
2001 |
86.9 |
27.9 |
52.5 |
74.0 |
101.3 |
178.6 |
100.00 |
2002 |
87.6 |
29.2 |
53.9 |
74.4 |
100.5 |
180.0 |
99.80 |
2003 |
88.2 |
29.6 |
54.5 |
74.5 |
102.1 |
180.0 |
99.52 |
2004 |
89.1 |
29.7 |
55.5 |
77.6 |
103.6 |
179.2 |
101.13 |
2005 |
89.5 |
29.8 |
55.6 |
77.9 |
104.3 |
179.7 |
103.46 |
2006 |
91.3 |
30.4 |
56.5 |
79.5 |
107.4 |
182.7 |
104.08 |
Growth getween 1996 and 2006 |
10.49 |
1.95 |
5.14 |
10.01 |
11.12 |
13.71 |
8.30 |
compiled by Andre Huang/source: DGBAS/units: NT$10,000
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