Opportunities from low inflation
Opportunities from low inflation
The consumer price index (CPI) in August fell 0.07% against the previous month and rose by only 0.61% from a year earlier. The average inflation in the first eight months of the year was 0.83%.
Low inflation, as in 2014, is likely to repeat in 2015. The prime reason for macroeconomic stability and positive results in controlling inflation is the government’s consistent pursuit of these goals by implementing a tight macroeconomic policy. The government also takes appropriate measures to support business activities and improve the balance between demand and supply as the prices of many materials and fuels in the world market are on a downward trend and global inflation remains at a low level.
As the fear of deflation and disinflation subsides, low inflation is a golden opportunity to restructure the economy and change the growth model to a more stable and sustainable one. Accordingly, the drivers of growth will shift from investment, cheap labour and natural resources extraction to increasing productivity, return on investment and applying advanced technology to the manufacturing process.
Inflation also offers an opportunity to restructure other markets including commodities, finance and banking, labour, land, and science and technology as competition on price and seeking profits from high inflation are replaced by competition on quality and true capacity. In addition, this is the right time to redistribute the economy’s resources, from human to material and financial resources, to overcome the trap of cheap prices and utilise available resources more effectively.
Low inflation creates favourable conditions to accelerate economic reform by restructuring both input and output elements of each product, service, enterprise and economic sector on the foundation of macroeconomic stability, low inflation and international economic integration. At the same time, they should be combined with suitable macroeconomic policies to promote production, creating a favourable business climate to support and encourage enterprises to enhance their capacity on both domestic and international markets.
Low inflation is only helpful when it is coupled with a balanced budget, positive balances of trade and payments, a balance between savings and investment and the non-existence of property, stock and credit bubbles.
In conclusion, there are huge opportunities from low inflation but using these opportunities effectively depends on specific actions by both the government and the business community.
