Feb 2016 Financial News

T&T’s inflation rate slows

Feb 01, 2016

Although energy prices are continuing to have a negative effect on the T&T economy, the Central Bank is reporting that labour market conditions remain broadly favourable, with demand for low and semi-skilled workers remaining relatively buoyant.

In its latest monetary policy report, the Central Bank said there were declines in crude oil and natural gas production during the period October to November 2015. The bank said the “slippage in gas output in particular” conrtinues to negatively impact downstream industries.

“Available data over this period also allude to tepid activity in some of the non-energy sectors, most notably distribution and construction. Although there have been recent reports of lay-offs across the construction, manufacturing and energy sectors, labour market conditions still appear broadly favourable, with demand for low to semi-skilled workers remaining relatively buoyant.

“The persistence of low oil prices suggests that fiscal stimulus to the economy is likely to be severely constrained in coming months,” the bank said.

Data from the Central Statistical Office’s Retail Price Index (RPI), showed headline inflation of 1.5 per cent last December and 1.4 per cent in November—a slowdown from 3.2 per cent in October.

The report continued: “In the final quarter of 2015, core inflation hovered around 2.3 per cent, slightly above the levels experienced over the first nine months of the year, due in part to an increase in fuel prices announced in the 2015/2016 Budget. On the other hand, food inflation slowed significantly to 2.7 per cent in December compared with 6.1 per cent in October, and 14.6 per cent in January 2015.

“While aggregate demand conditions are expected to be contained, the inflationary outlook for 2016 will also be affected by the net impact of a reduction of the VAT rate to 12.5 per cent from 15 per cent alongside an increase in the VAT-eligible items. Weather-related shocks could also affect the behaviour of food prices.”

The Central Bank said there have been relatively high liquidity levels since December and banks’ excess reserves averaged $3.4 billion in December and $4 billion for most of January.

The bank said it continued to utilise its various instruments, including open market operations, Treasury bills and special deposits offered to commercial banks, to address the liquidity situation.

“On the interest rate front, with long-term rates in the United States slipping as investors sought safe haven instruments in the wake of financial market volatility, there was a widening of the TT/US 10-year Treasury yield from 161 basis points in December to 187 basis points as at January 25, 2016. However, there was simultaneously some compression at the shorter end of the yield curve, with the differential on 91-day securities narrowing from 84 to 69 basis points.”

Looking at the global picture, the Central Bank said volatility in international financial and commodity markets at the end of 2015 persisted into January. Despite steady economic activity and stable unemployment, concern about global developments prompted the US Federal Reserve to keep interest rates on hold in January following the first rate increase since 2008. Commodity prices remained soft, with energy prices in particular tumbling to a 10-year low in early January 2016.

“Taking into account the prevailing economic climate and the short-term outlook, at its January 2016 meeting the Central Bank’s Monetary Policy Committee decided to maintain the Repo rate at 4.75 per cent. The Bank will continue to carefully analyse domestic and international economic developments in its deliberations and decisions.

Source:
Trinidad Guardian
Monday February 1, 2016

http://www.guardian.co.tt/business/2016-01-30/tt%E2%80%99s-inflation-rate-slows