Barbados is most definitely at a crossroads. Traditionally, discussions about the state of the economy would focus on macroeconomic issues such as employment/unemployment, public debt, fiscal deficit, and trade balance.
Inflation, for the most part, was seen as low to moderate, thereby creating little room for panic or debate. Today, the circumstances have changed dramatically. The end result is that the frequent and rapid increases in prices across the board are taking a toll on the Barbadian public and have become major talking points throughout the length and breadth of the country.
While it is easy to play the blame game, the truth is that no single factor or individual can be held accountable for the alarming rate at which prices for almost all of the basic goods and services consumed locally have been increasing over the past few months and years. And therefore, we as a society have to shoulder the responsibility for the price hikes that have been going on with no end in sight.
After all, the Government has, through tax increases, contributed to rising prices on many commodities in Barbados, including the cost of airline tickets. The business sector, too, must accept their role in fostering the surge in prices by passing on excess costs to consumers and refusing to significantly lower markups and profit margins.
Consumers, through their lack of willingness to maintain financial discipline and simply refuse to purchase some commodities when their prices increase, are hurting themselves in the process.
However, the overall situation is not that straightforward, for it is vitally important to observe that what we as consumers in Barbados face is a serious problem – a problem based in part on the concept of the elasticity of demand.
Demand, like so many other macroeconomic aggregates, is influenced by several factors simultaneously. For those factors that are quantifiable, economists can easily estimate the associated elasticity of demand.
Those estimates allow for the classification of goods and services as luxuries or necessities on the one hand.
In other scenarios, demand for those goods and services can be described as elastic or inelastic. In short, these various classifications have implications for the manner in which consumers are able to respond to price increases. If, for instance, demand for a good is inelastic, consumers would have little flexibility in responding to a price hike, leaving them to absorb the higher prices and make a greater expenditure on the commodity even when their consumption patterns have not changed one bit.
The case of our monthly electricity bills comes immediately to mind.
Therefore, the fight against continuously rising prices in Barbados has to be multidimensional, with inputs from the Government, businesses, and individuals. Outside of that framework, it would simply be “business as usual” and everyone in Barbados will continue to complain about increasing prices but there would be few solutions.
