Aug 2008 Financial News

Inflation inches to 12 %

Aug 29, 2008

INFLATION is inching to the 12 percent mark due to a steady increase in food prices from June to July. In a statement yesterday, the Central Bank said headline inflation (which is fuelled mainly by food prices) increased from 11.3 percent in June to 11.9 percent last month. This situation could be worsened by the “strong likelihood” that inclement weather and recent floods “could curtail the supply of agricultural produce and place upward pressure on the prices of many staple agricultural commodities.”

This increase has been attributed to an upward trend in food inflation from 23.1 percent in June to 25. 3 percent in July. The rise in the food index is mainly reflected in increases in the prices of bread and cereals (60.3 percent), meat (11.1 percent), oils and fats (27.2 percent), fruit (49.5 percent) and vegetables (23.1 percent). Within these figures, higher prices for packaged rice (81.9 percent) and packaged flour (88.3 percent) contributed to increases in the prices of bread and cereals (88.3 percent).

Increased prices for pawpaws (64.1 percent), ripe bananas (46.3 percent) and oranges (41.2 percent) were mainly responsible for the rise in the fruit sub-index. The price of dairy products last month was 20 percent higher than the price of dairy products in July 2007.

Core inflation, which does not include food prices, decreased slightly from 6.4 percent in June to 6.2 percent last month. The bank said the current rate of core inflation compares with rates between two and three percent in the 2003 to 2005 period and underscores the significant increase in underlying inflationary pressures that has occurred over the last three years.

The bank said over the last few months it has taken steps to contain the increase in inflation such as increasing the cash reserve requirement for commercial banks from 11 to 15 percent, increasing the policy interest rate by 50 basis points, expanding open market operations using short-term government paper and $1.2 billion of government bonds targeted specifically at liquidity absorption.

Inflation management is likely to continue to be a major challenge in ensuing months given the outlook “for continued high global energy and food prices and entrenched inflationary expectations which could trigger higher wage demands.”

The bank said it will continue to pursue a tight monetary policy and the extent of tightening will depend on a number of factors including wage and salary adjustments and global food and energy price developments.

The repo rate has been maintained at 8.5 percent.


Source:
Newsday
Friday, August 29 2008

http://www.newsday.co.tt/news/0,85245.html