Taiwan’s Businesses Are Increasing Prices To Earn Higher Profits

Taiwan’s Businesses Are Increasing Prices To Earn Higher Profits
Photo Credit: Reuters / TPG Images

What you need to know

Average consumers will take a hit, while businesses will continue to earn high profits from the recent price increases.

Several chain restaurants in Taiwan have recently announced price increases. These businesses will typically cite factors beyond their control like rising production costs or rising labor costs, implying that you have to pay more for your McDonald’s meal because employees are demanding higher wages.

Once again, I’m here to tell you to not buy what the businesses are saying.

Let’s compare the trends in the consumer price index and producer price index to get a better understanding. As their names indicate, the consumer price index measures the change in prices to consumers, while the producer price index measures the costs to producers for the production of consumer goods.

Since 1959, consumer prices in Taiwan have risen by 9.5 times while producer prices have only risen by four times. In other words, consumers are seeing their prices rise more than twice as fast as the costs for producers.

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When we look at prices since 1980, you can see that producer prices have barely increased, while consumer prices have doubled.

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Let’s see how Taiwan compares with Europe. (We’ll use OECD European countries as a reference.) 

Since 1982, producer prices have actually grown in tandem with consumer prices.

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If Taiwan had followed a similar path to the OECD European countries, consumer prices either would have remained flat over the last 40 years since 1980, or producer prices would have risen by about two times. 

Given that producer prices have not been increasing in Taiwan, the increases in consumer prices by Taiwan’s businesses have allowed profits to increase.

But it was not always like this. From 1959 until the mid- to late-1970s, consumer prices in Taiwan grew only about as quickly as producer prices. 

The disparity only started to widen from the early-1980s, when producers have been able to keep their costs low, while still increasing prices to earn higher profits.

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Producer costs are in part dependent on the costs of imports, such as the import of the raw materials that businesses need to manufacture their products. 

Producer prices have largely tracked that of import prices.

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Let’s look at the data for Germany—the largest economy in Europe— for which data is available across the same duration as Taiwan for comparison.

When we compare producer prices with import prices in Germany, we can see that producer prices have been increasing even as import prices have remained relatively flat. This suggests that the rise in producer prices are due to the domestic market more than external factors.

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Comparing import prices for Taiwan and Germany shows that they have largely not changed over the last 40 years.

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Taiwan’s business groups have blamed minimum wage increases for price increases, but domestic consumer price increases have more to do with import price increases and business profits. And as this comparison has shown, Taiwan’s businesses have increased prices by more than they need to in order to profit excessively from it.

Given that import prices have largely remained stable, and from the trend of producer prices in Taiwan, there have been few local factors that require business costs to be increased, why are Taiwan’s businesses increasing consumer prices?

Taiwan’s successive governments have kept costs and wages low for businesses, but there has been no corresponding measure to keep consumer prices low.

While Taiwan’s government has kept costs low for businesses (or the so-called five industrial shortages of land, water, electricity, talent, and workers), businesses have not kept prices low for consumers. Instead, they have taken advantage of the low production costs to jack up consumer prices and earn higher profits for themselves. 

This has created a lopsided economy. Prices are too high for Taiwan’s wages, and on top of the excessive profits and over-speculation in the housing market, average citizens are getting squeezed. The low cost structure has also reduced innovation, throttling Taiwan’s ability to achieve higher economic growth. 

The price increases are mostly about businesses moving to earn higher profits. Bold and urgent policies must be implemented immediately to stop this war on Taiwan’s working people.


READ NEXT: Minimum Wage Increases Are Not Just About Low-Income Workers. Here’s Why.

TNL Editor: Nicholas Haggerty (@thenewslensintl)

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