Once again, Taipei is being branded as too expensive.

In the September issue of the American magazine Fortune, Taipei was judged to be the Western business community's least favorite Asian city. Apart from its gourmet dining, which remains as incomparable as ever, Taipei's crowded traffic and polluted environment gave rise for concern; even worse were its high prices, now second only to Tokyo's.

This is no biased opinion, either. A US State Department assessment earlier rated Taipei as the world's most expensive city to be stationed in. Even allowing for recent NT dollar appreciation against the US dollar, which has reduced dollar purchasing power in Taiwan, the Commodity Price Supervisory Board of the ROC Ministry of Economic Affairs itself has established that certain prices in Taiwan, especially for clothes, are higher than in Japan.

This year local commodity prices, which caused enough complaint before, have been affected by a "bad year" in terms of both natural and man-made disasters. Since the middle of August when Typhoon Yancy struck, Taiwan has weathered typhoons Abe and Dot in quick succession, causing enormous losses in farm produce. Vegetable prices have shot up to such a degree that one cartoonist asked stallholders tongue in cheek to "remember that cabbages are only cabbages." While we are facing a shortage of vegetables at home, 8,000 kilometres away in the Middle East a man-made disaster has blown up with Iraqi president Saddam Hussein's invasion of Kuwait. An eight-nation joint force is on the brink of war, and the threat of a third oil crisis is already looming.

Where Taiwan's commodity prices are concerned, will this really add "fuel" to the flames?

Judging from the figures, the answer seems to be yes. According to figures issued by the Executive Yuan's Directorate General of Budget, Accounting & Statistics, the August consumer price index showed an increase of over 5.5% compared to the same period last year. With the additional stimulus of July's salary hikes for military servicemen, public employees and teachers, together with higher school fees in August and September, the Council for Economic Planning & Development forecasts that September's domestic commodity prices will rise by an annual rate of 6%, a record since the second oil crisis.

Many people are already taking actions that fall in line with these statistics. Those whose memories of the second oil crisis are still fresh have begun worrying that we're back to the days of stockpiling toilet paper. On August 24, when the Ministry of Economic Affairs announced that "certain oil prices would be adjusted as from 12 noon, long queues formed at filling stations as drivers tanked up with cheap petrol, and some people brought along large plastic containers to store petrol at home.

Next morning many customers visiting bakeries were surprised to discover the bill came to NT$1 more than expected, as bread prices had quietly risen overnight. In the evening when they went to the night market for a bowl of oyster noodles they found new prices written on red paper had unaccountably been stuck over the plastic price boards. These stallholders were even greedier, for their prices were jacked up by NT$5 for a NT$10 bowl of tofu junket or a NT$25 serving of squid broth, a far bigger rise than oil prices.

Needless to say it was the same story with transportation costs, which directly affect overheads. Taxicab trip-meter fares were "temporarily" hiked by NT$5, and other rates are under consideration; domestic air tickets have gone up, and a further 5% price hike is in the pipeline; it is planned to raise Taipei city bus fares by 50%, and the Taiwan Bus Company is seeking a rise of 67%. The appetite for price hikes has reached such a pitch that the Control Yuan itself has launched an enquiry.

Judging by past experience, rising oil costs plus public anticipation of higher prices will lead to widespread and sustained commodity price inflation. But this time it doesn't seem to be working out that way. Everywhere shops and stores are mounting cut-price sales and offering price reductions to boost custom. It's nothing unusual for clothes stores to run end-of-season sales, but this year the industry-wide cut-price bargains being offered are a real eye-opener.

Department stores like Chung Hsing and Sincere, and boutiques like Hsiao Ya and Ta Yu, all of which specialize in imported goods, have marked down their prices for imports by as much as 70%. Designers like Wen Ch'ing-chu, Chang Hsi-ning, Li Ch'un-chih and Lu Fang-chih have abandoned their determination of past years not to offer 70% price cuts and are now joining the fray.

Remarkably, retailers are falling over themselves to cut prices for items such as compact discs, furniture, home appliances, automobiles and antiques, none of which are subject to seasonal fluctuations. And prices for gold, real estate and land, normally much sought after as a hedge against inflation, have not only failed to rise rapidly, some are actually falling at an astonishing rate.

House prices in Taipei city have fallen on average by 30% compared with last year's peak; advance sale prices of new properties can be talked down by nearly 20%. As for rentals, although the overall market for rented housing is stable or even up slightly due to the many "snails without shells" who can't afford to buy a home, the cost of renting office space, shops and spacious luxury apartments in high-class developments has fallen quite considerably.

With another oil crisis in the offing, why are prices for many goods falling rather than rising?

"Firstly this is due to the economy being in a slump," explains Yeh Wan-an, vice-chairman of the Council for Economic Planning and Development. When the economy is booming, there is a strong demand for goods and energy; once supply cannot match demand, prices will rise dramatically. In contrast to the two previous energy crises, the worldwide economy is in a period of recession and there is no great demand for energy; as a result, oil prices have not gone up too seriously. In the first oil crisis, for example, crude oil prices shot up 400%, whereas this time, as of mid-September, they had barely risen 200%.

From a domestic viewpoint, prior to the previous two oil crises Taiwan's economic growth rate was over 10% and the effect felt was quite large; more recently, however, our economy has been in a recession.

In addition, Taiwan's economy is now more resilient than before. Thanks to NT dollar appreciation, the cost of Taiwan's oil imports as a proportion of gross national product has fallen to 2% from the previous levels of 5.5% and 12% during the first and second oil crises, respectively. So rising international oil prices have less impact on Taiwan now. This is why the China Petroleum Corporation, which belongs to the Ministry of Economic Affairs, has been able to raise only the price of consumer oil products, while allowing industrial fuel to hold steady at the original price in order to maintain the export competitiveness of Taiwan's industrial products and at the same time stabilize domestic commodity prices.

Taiwan's economic boom, the rising NT dollar and even Taiwan's holdings of foreign exchange reserves being one of the largest in the world, all this has meant that the threat of inflation is ever present. And the fact that inflation has not occurred is mainly due to government policy. "But for the effect of government policy, we would have seen domestic price inflation even without an oil crisis touching it off," observes Yeh Wan-an.

As he points out, two years ago when Taiwan's economy was experiencing rapid growth and the money supply greatly increased, there was an enormous rise in the cost of anything that couldn't be imported, such as real estate, land, stocks & shares, and Labor. Between January and September last year, the cost of rents and services such as labor rose by as much as 6.7%. Fortunately most imported goods fell in price thanks to the rising NT dollar and lower import duties and tariffs, with the result that average commodity prices were kept down.

Import duties on cosmetics, for example, have been slashed from 100% prior to January this year to "zero," which has cut the price differential with Hong Kong from 250% to 15%.

Imported automobiles are another striking example. Three years ago a Mercedes Benz would have set you back well over NT$1 million, but with a 30% appreciation of the NT dollar and import duties down to 15%, imported cars have now become affordable in Taiwan.

But the tax burden cannot be slashed indefinitely, and there is only limited room for further appreciation of the NT dollar. In order to ensure normal economic growth and release inflationary pressure, the Central Bank decided to adopt a policy of financial stringency as from March of this year and the money supply growth rate has steadily fallen from its original 30%; another factor which caused there to be less cash in circulation in Taiwan was purchases of foreign currency by many people who anticipated that the NT dollar would depreciate.

In addition interest rates have risen by 250% and housing loans have been tightened, with the result that many real estate speculators have thrown in the towel because they cannot obtain the generous loans that were available before, nor can they afford the heavier interest payments.

Real estate prices have continued to decline and the stock market is in a state of great decline after rising sharply. Now that these two "locomotives" of the manufacturing and service sectors have ground to a halt, allied businesses such as furniture, home appliances, restaurants, leisure and entertainment have seen a fall-off in trade. Many people who once had money to burn now find themselves in difficult straits, which has thrown a further pall over domestic purchasing power.

"In business we seek to make a profit on our capital, and if our costs rise we think of ways to pass the burden on," the Taipei Hilton's national director of sales Tony Azarias states frankly.

This has been a trying year for the tourist hotel industry. Taiwan is an expensive place compared to Southeast Asia, and this year inbound tourism has shown negative growth. Meanwhile several large tourist hotels such as the Grand Hyatt and the Regent have opened one after the other, causing average hotel occupancy rates to fall; while on the restaurant side the outlook is bleak because of declining local spending power. Thus Taiwan's tourist hotels have decided not to raise their prices next year; and despite rising vegetable prices their restaurant charges will remain unchanged. Tony Azarias himself can't help chuckling: "Everyone will be coming to hotels to get their intake of greens."

Amid this welter of falling prices, the place where the greatest decline has been felt is in the area of items you can live without, of which antiques are one.

"This line of business is the most sensitive to the economy," observes Lin Han, proprietor of Tahan Antiques. Compared with the best times in the past, prices are down about one-third, and sales have also dropped by one-third. Poker-faced, he reveals the stunning news: "In the past prices didn't just rise, they shot up. Now we are coming back to base level--to levels prices should have been at all along."

According to him, the recent craze for "investment" in the antiques market meant that there was a demand even for second-rate items. "If I saw something going for NT$100,000 elsewhere, why should I charge only NT$60,000?"

Perhaps it's because his line of business is considered a little out of the ordinary, but for all the red stickers on the doorway advertising 20% off, Lin Han says resignedly that Taiwan's abnormal economy has braked just in time, and if you haven't gone out of business you're not doing too badly.

Some goods and services have high capital costs and cannot offer much flexibility in pricing, yet they are not in a position to absorb the increases themselves. These are faced with a dual problem of rising prices and falling business.

These days many travel agents are finding that business is shrinking fast. Fanta Travel, however, is an exception. Their new shorter holidays costing in the region of NTS19,000, NT$29,000 and NT$39,000 have proved popular with consumers.

"Things haven't been so good lately, and people with large holdings of capital have been the hardest hit because the value of their possessions has gone down; ordinary office workers are less affected since inflation hasn't been too bad," observes Fanta Travel's deputy manager Wang Ssu-chia.

Looking more closely, the travel products offered by Fanta are obviously aimed at office workers. Their short duration of five days to one week means you don't have to ask for much time off, and their prices are under NT$50,000 and "feel" cheaper because they end in NT$9,000. All this makes them tailor-made to attract the average family living on a salary.

Wan Ssu-chia points out that products promoted in the past such as European tours were designed for people with wealth and leisure to spare, and the prices were fixed at the market level--if the market as a whole goes up in price, why shouldn't I earn a little more too? Now the wheel has come full circle, and the travel agents' marketing strategy has been changed so as to attract previously neglected salaried personnel.

"We are now in an era of good quality products at reasonable prices," Wang Ssu-chia positively enthuses.

Leaving aside the question of how big a pinch of salt consumers should take such "promises" with, at least from now on the average consumer in all kinds of stores is going to find a lot of goods whose price level and quality are tailored for him.

In fact, judging from many lines of business, Taiwan is entering a period of new commodity prices in which the age of the salaried consumer has dawned. Yet before this can happen, Taiwan's consumers face another big enemy apart from the Iraqi invasion of Kuwait, and that is steadily declining productivity.

According to figures supplied by the Directorate General of Budget, Accounting & Statistics, during last year and the first half of this year, domestic manufacturing industry experienced an average wage rise of 14%, while productivity fell way behind. Last year's rise in productivity was 10.6%, and that in the first half of this year 6.3%. In other words, everybody's wages went up, but they produced less. In such circumstances it's hard to imagine that commodity prices will do anything but rise.

"Labor costs are the biggest hidden threat to commodity prices at the moment," Yeh Wan-an points out.

It seems that if we want to enjoy the benefits of lower commodity prices, we consumers--who are at the same time the providers of labor--must put in a little harder effort on our part too.

[Picture Caption]

The rise in oil prices and crazy jump in vegetable prices have been major media topics. Yet discounts and sales for all kinds of consumer products have also been rampart.

Snack food vendors have upped their prices by a greater margin than petrol prices.

(Left) With international oil prices rising due to the Gulf crisis, queues of cars appeared at filling stations as the MOEA prepared to announce higher petrol prices.

Faced with a shrinking market, wholesalers are entering the retail market with favourable effects on Taiwan's commodity prices. (photo courtesy of Makro Taiwan Ltd.)

(Left) Watches are not a seasonal item, so how come they're subject to a price-cutting war?

With the building industry in recession, many people's capital is tied u p. (photo by Vincent Chang)

Home appliance sales are sluggish even at Mid Autumn Festival, forcing vendors to slash prices.

Housewives are simply flabbergasted at post-typhoon vegetable prices.

Recent Factors Affecting Commodity Prices．

Inflation is looming; are gold prices also getting ready to move?

Antiques prices have fallen by as much as 300%, but "unfortunately" this hasn't been listed in the consumer price index.

This year's end-of-season sale reductions are fantastic.

The rise in oil prices and crazy jump in vegetable prices have been major media topics. Yet discounts and sales for all kinds of consumer products have also been rampart.

（Left） With international oil prices rising due to the Gulf crisis, queues of cars appeared at filling stations as the MOEA prepared to announce higher petrol prices.

Snack food vendors have upped their prices by a greater margin than petrol prices.

（Left） Watches are not a seasonal item, so how come they're subject to a price-cutting war?

Faced with a shrinking market, wholesalers are entering the retail market with favourable effects on Taiwan's commodity prices. （photo courtesy of Makro Taiwan Ltd.）

With the building industry in recession, many people's capital is tied u p. （photo by Vincent Chang）

Home appliance sales are sluggish even at Mid Autumn Festival, forcing vendors to slash prices.

Housewives are simply flabbergasted at post-typhoon vegetable prices.

Recent Factors Affecting Commodity Prices．.

Recently affecting price factors.

Inflation is looming; are gold prices also getting ready to move?

Antiques prices have fallen by as much as 300%, but "unfortunately" this hasn't been listed in the consumer price index.