BARBADOS MAY BE BATTLING tough economic times, but it is benefitting from price stability.
That’s also true for several CARICOM neighbours where inflation is being held in check. Indeed, inflation numbers contained in a series of economic reports indicated that the island nations and coastal states have some of their lowest rates of inflation in recent years.
According to the Economic Commission for Latin America and the Caribbean (ECLAC), inflation has been low for most of the past decade, going back to 2006 when consumers were able to hold on to more of their hard earned funds and joblessness was low. The trouble is, though, recent imposition of taxes by Government as key plans in its home grown structural adjustment programme is taking away much of the savings.
The steady consumer price indices can be traced to what ECLAC calls “weaker domestic demand” for goods and services and falling international energy costs. In other words, they are the result of both local and international factors.
“Low oil and commodity prices and weak domestic demand have also helped keep inflation in check at 1.9 per cent in 2014,” ECLAC said. “The forecast is for inflation to remain at around two per cent in 2015.”
With unemployment pegged at almost 13 per cent at the end of last year, one of its highest rates in years that followed Government’s decision to lay off about 3 000 employees, it stands to reason that domestic demand would be “weak”.
Barbados’ inflation picture looked like this: the variation in consumer prices in 2006 was 5.6 per cent in 2006, falling to 4.5 per cent in the next year; 7.3 per cent in 2008; declined to 4.4 per cent in 2009; but jumped to 6.5 per cent 12 months later; skyrocketed to 9.6 per cent in 2011; plummeted to 2.4 per cent in 2012; 1.1 per cent in 2013; and 2.3 per cent last year.
Inflation should be around two per cent this year.
“At the end of 2014, the 12-month average rate of inflation stood at 1.9 per cent, rising by 0.1 per cent of a percentage point year-on-year,” explained the Commission.
The benefits of stable prices and low inflation aren’t difficult to figure out. Generally, they tend to run the gamut from consumers being able to make long range plans because they know their purchasing power wouldn’t be significantly eroded; and having access to loans with lower interest rates; and a reduction in the fear of price gouging; to encouraging business competitiveness.
“Sustained low inflation is self-enforcing,” insists the Bank of Canada. “If business and individuals are confident that inflation is under long term control, they do not react as quickly to short term price pressures by seeking to raise prices and wages. This helps to keep inflation low.”
“But when inflation is high, businesses and households spend more time and money trying to protect themselves from the effects of rising costs and prices,” it added.
“The bank is equally concerned about inflation rising above or falling below the target and will act . . . in order to bring inflation down, or to push it up to two per cent.”
But how does Barbados compare with its neighbours? ECLAC’s numbers tell the story:
Jamaica’s consumer price index last year was 6.4 per cent, down from 9.5 per cent the year before that, “marking the third consecutive year of single digit inflation. The rate of inflation is expected to decline even more this year, projected to fall to about five per cent in 2015, close to the historically low rate of 4.4 per cent recorded 43 years ago.
Guyana’s inflation was 1.2 per cent last year, “reflecting a moderate rise of 2.1 per cent in food price. It is expected to rise to two per cent, driven by higher food prices”.
The Bahamas’ inflation rose from 0.8 per cent in 2013 to 0.94 in 2014, “mainly reflecting higher prices for clothing and footwear, furnishings, household equipment and maintenance”, all of which were offset by a decline in fuel prices.
Trinidad and Tobago’s inflation was low in the first half of last year but jumped during the next six months, reaching 8.5 per cent year-on-year in 2014.
Suriname’s 2014 inflation rate was 3.9 per cent, up from 0.6 per cent in 2013, caused mainly by a push for higher wages and increases in food prices, the cost of education, recreation, and culture. Belize’s inflation was steady last year, ending 2014 at 1.4 per cent as international fuel prices plummeted.
Although low, predictable stable rates of inflation often pave the way for sustained economic growth and lower unemployment. Barbados hasn’t seen those rewards in recent years.