Feb 2015 Financial News

Inflation creeps up to 8.5%

Feb 02, 2015

Headline inflation “is creeping up” and reached 8.5 percent last December from the 5.5 percent at the start of 2014, Central Bank Governor Jwala Rambarran said yesterday.

Higher prices for foods, especially fruits and vegetables, is what led to the inflation spike, Rambarran told reporters at a press conference on monetary policy at Central Bank, Port-of- Spain.

“(The) pickup in headline inflation is mainly due to food price inflation, which remained in double-digit territory; almost 17 percent, for the sixth successive month in December 2014. The acceleration in food prices largely reflects rising prices for locally produced vegetables and fruits,” Rambarran said.

He also announced that at this month’s meeting, the bank’s Monetary Policy Committee (MPC) agreed to a third consecutive increase in the repo rate by 25 basis points to 3.5 percent. The repo is a discount rate at which the Central Bank buys government securities from commercial banks.

The first reason for adjusting the repo was the recent interest rate guidance from the US Federal Reserve about the future path of its monetary policy. “The second factor related to signs the TT economy seems to be approaching full capacity, and finally, the MPC considered the still positive growth outlook for the non-energy sector despite the steep decline in oil prices,” Rambarran stated.

He noted the economy approaching full capacity was reflected in such indicators as higher headline inflation, low unemployment being “at a little over three percent of the labour force”, and the demand for foreign exchange due to increased imports of consumer goods. On the matter of core inflation, Rambarran said the rate could be pushed up if Government maintains its “expansionary fiscal stance.”

He explained that although Government has “substantially revised downwards its energy price assumptions for the 2014 - 2015 Budget” because of falling crude oil prices, it intends to return to the original fiscal deficit target of “roughly 2.5 percent of GDP (gross domestic product).” “This suggests the Government is likely to maintain its expansionary fiscal stance (which) would further add to elevated liquidity levels; currently around $6 billion, and push up core inflation,” he said.

Describing the debate on how falling crude oil prices would affect the local economy as “ill- informed,” Rambarran reminded that TT “has been a natural gas economy for the past 16 years” and that those prices having remained stable. The Governor also said he does not expect a drop in natural gas prices until May of this year.

Source:
By Sasha Harrinanan
Newsday
Saturday January 31, 2015

http://www.newsday.co.tt/business/0,206337.html