UBUD, Indonesia -- With high and volatile oil prices, it appears that a rough road is ahead for those countries with currencies that have become weaker relative to the U.S. dollar. Perhaps one of the biggest concerns is that Taiwan, as an importer of oil, may face a new wave of inflationary pressures that could exert upward pressures on interest rates and cause a slowdown in the rate of economic growth.
But rising oil prices should not be seen as the primary cause of inflation. The simple truth is that, by themselves, rising oil prices cannot cause inflation. Those that think otherwise seem to have forgotten the hard-earned lesson that inflation occurs when too much new money or credit is pumped into the economy.
In any event, like most industrialized economies, Taiwan has a smaller weight assigned to oil and energy in the basket of consumer goods that is used to measure inflation. This reflects the declining importance of industrial production relative to services and information technology.