(China Daily)
Updated: 2008-05-08 07:17

Surging prices are not limited to products derived from crude oil. Prices of agricultural products like wheat, along with mineral resources such as iron and precious metals, are also picking up rapidly in pace with soaring prices in international markets. Costlier commodities are now beginning to push up prices of a wide range of basic necessities.

We probably have to brace ourselves for long-term upward trends in energy and food prices across the globe.

Despite all the buzz about price hikes, the consumer price index rose by only 1.2 percent in March from a year earlier. The prices of many consumer durables, including digital home appliances, actually declined due to technological breakthroughs and weak consumer spending.

Manufacturers and retailers are squealing because they are having difficulty passing on higher costs to consumers for fear of driving away customers. After years of adjusting to a deflationary environment, which has been in place since the 1990s, consumers in Japan are now quite reluctant to accept higher price tags.

These facts seem to suggest that there is still considerable deflationary pressure.

Fortunately, there are few signs of growing inflation expectations among the public. Still, the lingering effects of a deflationary downturn are hardly to be welcomed.

Consumers will be forced to leave their pocketbooks unopened, further dampening already weak domestic demand, if they are continually exposed to higher prices for imported goods and carry lighter wallets.

There are legitimate concerns that a virulent combination of inflationary pressure from higher prices of imported materials and a lingering deflationary undertow could end the uninterrupted economic expansion that started more than six years ago.

There is, however, no way to keep rising international commodity prices from affecting price trends at home. There is no single or quick solution to the problem. The only effective remedy would be a broad range of reforms to fix flaws in the domestic economy.

Long-term and structural changes in the world economy that are behind this situation require carefully planned and firmly committed responses from all sectors of the economy.

Companies need to step up their efforts for technological breakthroughs to overcome the effects of higher costs. Greater efficiency in the use of energy and resources and progress in alternative energy and recycling technologies would help dampen red-hot international commodity markets and create new businesses.

Consumers also need to change their way of thinking. They need to change their lifestyles and daily habits to offset higher prices. This will entail avoiding driving for leisure activities and turning to domestically produced foods whose output can be increased easily, starting with rice.

Such small efforts, when accumulated across the nation, could lead to significant results. Reconsidering conventional wisdom is a good way to start to overcome the nasty combination of inflationary and deflationary pressures.

The Asahi Shimbun

(China Daily 05/08/2008 page9)