Saturday, June 21 2008

INFLATION hit ten percent yesterday, the third time in less than two years as the Government continues to struggle to bring food prices down. Inflation first hit double digits in November 2006, slid to a low of 7.3 percent in October 2007 and then shot up to 10 percent on February , 2008.

The Central Bank in a statement last night said headline inflation (which is fuelled by increases in food prices) rose from 9.3 percent in April to ten percent last month. The bank said this increase was led by food prices which rose by 21.8 percent in May from 19.5 percent in April. The main contributors to food inflation were increases in the prices of bread and cereals (35.1 percent on a year-on-year basis), fruit (33 percent), vegetables (22.6 percent), oils and fats (20.2 percent) and meat (13.4 ) percent. While the prices of fish, milk, eggs and cheese continued to increase, the rate of increase slowed.

Core inflation, which excludes food prices, remained unchanged at 5.2 percent. Information from Namdevco shows there were sizeable increases in the prices of agricultural commodities such as carrots ($9.29 to $10.99 per kg) and cassava ($3.31 to $3.44 per kg) in May. There were also increases in transportation costs such as the San Juan Taxi Drivers Association increasing its fare by $1. The bank said liquidity in the financial system has been relatively tight over the last two months as commercial banks have made greater use of the inter-bank market and repurchase facility at the Central Bank.

The amalgamation of RBC/ RBTT will inject a sizeable amount of liquidity into the system and Government plans to use the first tranche of $1.2 billion in government bonds “to contain the liquidity impact of this cash injection. Several private financial institutions are also mobilising increased cash flows from regional and local projects to mop up excess financial liquidity.

The bank said current inflationary pressures on the economy could be worsened if the advent of the rainy season affects agricultural supplies as has occurred in the last few years.

Hours earlier during the post-Cabinet news conference at Whitehall, Port-of-Spain, Legal Affairs Minister Peter Taylor continued to give the assurance that Government is doing all it can to boost domestic agricultural supplies and prevent profiteering from taking place. He said Government has not approached Caricom about removing the common external tariff on imports of sugar and rice since this is a complicated issue.