Since the pandemic, global inflation has evolved from a simple supply shock to a structural issue. This article analyzes supply chain restructuring, greenflation, wage purchasing power erosion, and monetary policy limitations, exploring responses in Taiwan and globally under the 'new normal'.
NI Editorial Team
Comprised of senior wealth management, global markets, and fintech professionals
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Since the outbreak of COVID-19 in 2020, the global economy has experienced dramatic upheaval. Initially caused by production shutdowns and logistics disruptions from lockdowns, demand subsequently surged under expansionary monetary policy (Quantitative Easing, QE) and fiscal stimulus, creating a severe disconnect with lagging supply. According to the International Monetary Fund (IMF), this wave of inflation was not caused by a single factor but was the product of a "perfect storm." The Russia-Ukraine war in 2022 further intensified volatility in energy and commodity markets, pushing Consumer Price Index (CPI) figures to record highs across nations.
In Taiwan, despite the Directorate-General of Budget, Accounting and Statistics (DGBAS) continuously monitoring essential consumer goods, the public's "perceived inflation" significantly exceeds official data. This is primarily due to structural increases in dining-out costs, rent, and electricity, directly impacting the disposable income of salaried workers. Recently, as the U.S. Federal Reserve pivots on interest rate decisions, the world has entered a so-called "new normal" of high interest rates, high inflation, and low growth.
The core issue of current inflation has shifted from early "Cost-Push Inflation" to more complex structural problems. Labor market shortages (the Great Resignation) have forced companies to raise wages, which in turn are reflected in final product prices, creating a "wage-price spiral." On the consumer side, we see continuous price increases in chain restaurants and daily necessities. Although oil prices stabilized somewhat between 2024 and 2025, geopolitical risks — such as the Red Sea crisis's impact on shipping rates (SCFI index) — remain obstacles to price normalization.
Under traditional economic models, globalization was the primary force keeping prices low. However, as the U.S.-China trade war continues to escalate, companies are shifting from "global division of labor" to "friend-shoring" and "near-shoring." This national security-first approach to supply chain restructuring, while improving resilience, has significantly increased production costs. Apple Inc. (AAPL) and Intel Corp. (INTC) moving production lines out of China to India or Vietnam means initial infrastructure investments and logistics efficiency losses are ultimately passed on to consumers.
Another technical detail that cannot be ignored is "Greenflation." To achieve 2050 net-zero emissions goals, countries are implementing carbon fees or taxes (such as the EU's CBAM). This has caused demand for mineral resources like lithium, cobalt, and nickel to surge during the transition from fossil fuels to renewable energy. According to Goldman Sachs (GS) analysis, capital expenditure required for energy transition will continue to push up commodity prices over the next decade. This policy-driven cost increase is a fundamental challenge that traditional monetary policy alone cannot resolve.
When analyzing inflation, one must distinguish between "nominal data" and "actual experience." In the United States, while Bureau of Labor Statistics (BLS) data shows inflation has retreated from the 9% peak, core CPI — excluding food and energy — remains sticky. This means that once service sector prices such as healthcare, insurance, and rent increase, they are extremely difficult to reverse.
In Taiwan, economic growth heavily depends on the semiconductor industry (such as TSMC, 2330.TW / TSM). While this has boosted per capita GDP, it has also created a "Dutch Disease" phenomenon between industries. Capital flows heavily toward technology and real estate, causing the house price-to-income ratio to continue climbing. For grassroots consumers, wage increases cannot keep pace with housing and basic commodity inflation, making the erosion of real purchasing power a hidden pain of economic development.
Central banks face the "impossible trinity" challenge when addressing inflation. Fed Chairman Jerome Powell has repeatedly emphasized that maintaining price stability is the primary mission, but aggressive rate hikes could trigger financial system instability — as evidenced by the 2023 collapse of Silicon Valley Bank (SIVB). Furthermore, while central banks attempt to reduce their balance sheets (QT), governments continue expanding fiscal spending to maintain economic development (such as the U.S. Inflation Reduction Act, IRA). This phenomenon of "pressing the accelerator and brake simultaneously" continues to extend the timeline for inflation management.
Regarding the current economic predicament, there is a clear divide between academia and industry. The moderate camp, led by Nobel laureate Paul Krugman, argues that inflation is a temporary supply shock and that excessive rate hikes would damage long-term productivity. However, former U.S. Treasury Secretary Lawrence Summers warns that if real interest rates are not maintained at sufficiently high levels, inflation expectations will become entrenched, leading to 1970s-style stagflation.
In Taiwan, industry associations frequently call on the government to use tax tools more flexibly, such as reducing tariffs and business taxes on key imported materials, to ease cost pressures on businesses. At the same time, experts recommend companies accelerate digital transformation and automation, using artificial intelligence (AI) to optimize logistics and inventory management to offset rising labor costs. The AI wave driven by NVIDIA Corp. (NVDA) is viewed by many economists as key to improving Total Factor Productivity (TFP) — the only solution that can sustain economic growth without triggering inflation.
Facing consumer price pressure, government intervention mainly focuses on two approaches: direct price controls (such as oil and electricity price stabilization mechanisms) and subsidies to reduce burdens (such as rent subsidies and TPASS commuter passes). However, economists point out that long-term energy price freezes cause state-owned enterprises like Taipower to face massive financial losses, ultimately requiring tax revenue to cover — effectively making everyone pay.
A more ideal approach is to establish "consumer buffer mechanisms." For example, strengthening cold chain systems for agricultural products to stabilize seasonal fluctuations, or diversifying import sources to reduce dependence on single markets. For individual investors, in an inflationary environment where cash assets continuously depreciate, allocating assets with inflation-hedging properties — such as Treasury Inflation-Protected Securities (TIPS), blue-chip stocks with pricing power, or physical real estate — becomes essential for wealth preservation.
To address insufficient wage purchasing power, Taiwan has passed the Minimum Wage Act, attempting to link basic wage adjustments to CPI. However, industries worry this will further push up operating costs. Experts suggest shifting focus from "basic wages" to "skill transformation," subsidizing workers to learn new skills (such as digital tools and green finance), liberating them from low-value-added labor and enabling inflation-resistant income growth. Additionally, strengthened social safety nets, particularly targeted subsidies for low-to-middle-income households, are more effective than universal consumer vouchers in addressing the impact of prices on livelihoods.
Looking back at the relationship between inflation and economic development, we are at a historic turning point. The past thirty years of low inflation and low interest rates — "The Great Moderation" — have ended. In its place is a new era where geopolitics takes priority over economic efficiency, and environmental sustainability outweighs cheap production. Inflation is no longer merely a monetary phenomenon; it is the growing pain of social resource redistribution and forced industrial structural transformation.
Rising prices reflect costs we have long ignored: environmental costs, supply chain security costs, and aging population costs. Therefore, we cannot simply expect prices to "fall back to the past" but must learn to build a new economic order on new baselines.
Looking ahead, investors and policymakers should continue monitoring three key indicators:
In today's world where global economic uncertainty has become the norm, Taiwan — as the core of the global semiconductor supply chain — possesses strong technological competitiveness but still requires more flexible policy guidance when facing the dual challenges of consumer inflation and economic transformation. Governments, businesses, and individuals must all develop "risk resilience," not only observing data fluctuations but also discerning the structural changes behind the data. Inflation may be a current concern, but it is also a catalyst driving social evolution and forcing all sectors to re-examine resource allocation efficiency. Only through technological innovation and institutional optimization can we steadily advance long-term economic development amid the waves of price volatility.