Jul 2009 Financial News

Inflation falls due to steadying food prices

Jul 27, 2009

Slower increases in the price of food contributed to the sharp reduction in the rate of inflation to 8.4 per cent for the 12 months ending in June 2009, the Central Bank reported yesterday.

In its monthly repo rate announcement, the Central Bank said that its analysis of the monthly data “clearly reveals” that there had been a “pronounced deceleration” in inflation for the entire first half of 2009. “Food inflation, the main driver of the headline rate, decelerated to 16.5 per cent in the 12 months to June 2009 from close to 20 per cent in May,” according to the Central Bank. The reduction food price inflation is significant because when the rate of inflation peaked at 15.4 per cent in October 2008, food prices had increased by 33.4 per cent on a year-on-year basis.

According to the Central Bank, between June 2008 and June 2009, T&T recorded slower year-on-year price increases for bread and cereals (12.5 per cent compared with 20.4 per cent in May), meat (7.1 per cent compared with 8.3 per cent in May), oils and fats (14.5 per cent compared with 18 per cent in May), fruits (36.7 per cent compared with 41.1 per cent in May) and sugar, jams and confectionery (7.4 per cent compared with 11.3 per cent in May). As regards food inflation, slower year-on-year price increases were recorded for bread and cereals (12.5 per cent compared with 20.4 per cent in May), meat (7.1 per cent compared with 8.3 per cent in May), oils and fats (14.5 per cent compared with 18 per cent in May), fruits (36.7 per cent compared with 41.1 per cent in May) and sugar, jams and confectionery (7.4 per cent compared with 11.3 per cent in May).

In the case of core inflation, the deceleration reflected slower price increases in the sub-indices for health (7.0 per cent compared to 7.9 per cent in May) and housing (4.2 per cent compared to 8.5 per cent in May). The Central Bank attributed the reduction in inflation to “lower international commodity prices as well as to the compression in domestic demand arising from the marked slowdown in the local economy.” As a result of the slowdown in the local economy, the Central Bank noted that “private sector credit by the consolidated financial system measured 1.6 per cent compared with 8.4 per cent in January” and that consumer credit declined by 0.9 per cent in May, the first recorded year-on-year fall since November 2003.

The institution also noted a slowing in business credit expansion and real estate mortgage lending. The Central Bank indicated that while it was encouraged by the “continued deceleration in inflation,” there were several downside risks to the inflation outlook. These included, according to the Bank:
• It is not yet certain whether inflation expectations have been fully reversed.
• There is always a risk that domestic agricultural prices could increase in the coming months in the face of inclement weather.
• The balance between fiscal and monetary policy needs to be adjusted.
As a result of the reduction in the inflation rate, as well as the slowdown in the local economic activity, the Central Bank decided to lower its main policy rate—the “Repo rate”—by 25 basis points to 7.25 per cent.

The next “Repo” rate announcement is scheduled for August 28.

Source: Trinidad Guardian
http://guardian.co.tt/business/business/2009/07/25/inflation-falls-due-steadying-food-prices

Published: 25 Jul 2009