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| The Central Bank said the latest pickup in inflation has been led by a surge in food prices which rose from 16.6 per cent in October 2007 to 20.4 per cent in January this year. (File photo) | |
PORT OF SPAIN, Trinidad, May 1, 2008 - The Central Bank of Trinidad and Tobago has served early notice that attaining the government's target inflation rate of six percent by the end of this year will present serious challenges and will require "stronger monetary policy action and considerable expenditure tightening".
The most recent inflation data released by the Central Statistical Office indicate that headline inflation, measured by the 12-month increase in the Index of Retail Prices, rose to 9.8 per cent in March 2008 from 9.4 per cent in the previous month.
In its April 2008 Monetary Policy Report, the bank said that in order to meet its six per cent inflation target, the Patrick Manning administration would, among other things, have to review its expenditure with a view to re-phasing some budget expenditure.
"This would accommodate a possible increase in poverty alleviation programmes and projects, geared to accelerate the resuscitation of the agricultural sector," the report said.
It added that demand control would face even greater challenges later this year as a result of the significant inflow of resources related to the recent sale of Royal Bank of Trinidad and Tobago (RBTT) to the Royal Bank of Canada.
"The Central Bank, the Ministry of Finance and the Securities Exchange Commission are planning to provide a number of alternative instruments to RBTT stockholders to prevent the additional liquidity from generating asset bubbles or further inflationary pressures. The potential pressures that could come from these capital inflows further underscore the critical need for a re-phasing of government expenditures," the report explained.
The bank has also pointed to other concerns - the widely-held view that the recent escalation in food import prices is structural and unlikely to be reversed anytime soon; the delays in the implementation of the government's new agricultural thrust involving the establishment of a number of large farms, an increase in infrastructural investment in agriculture and the introduction of a programme of fiscal incentives to agriculture; and the noticeable rise in inflation expectations driven by the surge in food prices.
"Higher inflation expectations could set in train higher mark-ups in anticipation of future price increases and an increase in wage pressures," it said.
"Given these many challenges, strong measures on several fronts will be required to ensure that double-digit inflation does not become entrenched."
After peaking at 10 per cent in October 2006, headline inflation in the twin-island republic declined gradually to 7.3 per cent by October 2007 as a result of tighter monetary policies, a one-time reduction in tariffs and taxes on a range of food items and a series of government interventions geared to establishing more competitive markets for certain agricultural products.
That steady decline was however reversed in December 2007 and headline inflation returned to 10 per cent in January 2008. The rate dropped to 9.4 per cent in February but climbed by 0.4 per cent in March.
The Central Bank said the latest pickup in inflation has been led by a surge in food prices which rose from 16.6 per cent in October 2007 to 20.4 per cent in January this year.
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