at the Customs and Excise division, such as the work stoppage
earlier this week because of a defective air conditioner,
are contributing to higher cost of living as a result of
inefficient processing of documents and poor work practices.
Photo: Keith Matthews
far as I am concerned, the rate of inflation is the most
important economic issue facing this country at this point.
Rising prices throughout the economy (and it is not only
food prices) have the potential to eat away at the gains
that working people have made in the last five years as
a result of the reduction in taxes and salary increases.
It is clear to me that the two issues are linked.
In the last four years, the Government has lowered individual
and corporate taxes and granted double digit salary increases
to many public sector workers. The minimum wage has gone
up twice in the period from $7 an hour to $9 an hour.
At the same time, the Central Bank has worked hard to drive
down the cost of borrowing by lowering the reserve requirement.
This started in October 2003 when the Central Bank announced
its intention to lower the reserve requirement applicable
to the commercial banks from 18 per cent to nine per cent
of prescribed disabilities on a phased basis over an 18-month
The first reduction from 18 to 14 per cent, took effect
from October 22, 2003. The second from 14 per cent to 11
per cent took effect from September 15, 2004 and the third
is now overdue.
So, many T&T working people are paying lower taxes,
receiving higher salaries and are paying lower interest
rates on their loansall except their credit card loans
which have remained stubbornly high.
All three factors are good and the Government and the Central
Bank should be praised for measures which should redound
to an improvement in living standards.
The three factors mentioned above combined with much higher
prices of T&Ts exports contribute to a fourth
factor which should lead to an improvement in living standardsa
reduction in the rate of unemployment.
Higher energy revenues have allowed the Government to embark
on a programme of state-sponsored construction which may
be unprecedented in the regions history.
While it is clear that much of this state-sponsored programme
is unnecessary and extravagant, the fact is that it has
created thousands of new jobs in the construction sector.
New jobs mean that people coming out of our education and
training institutions get employed almost immediately. It
also means that workers change jobs for higher salaries
and returning nationals and skilled non-nationals have also
Higher salaries, lower taxes and interest rates and the
creation of new jobs are a good thing and those responsible
should take the credit.
But these factors of success have all contributed to increasing
the demand for goods and services in T&T.
It would be possible to track the increased demand for new
houses, cars and furniture in the period under examination.
There has also been an increased demand for lawyers, accountants,
property valuers, real estate agents and workers with construction
As everyone knows, if there is increased demand for goods
or services without a commensurate increase in supply of
the goods and services, there is likely to be an adjustment
in the prices.
This pricing power has contributed to the skyrocketing inflation
ratewhich seems to have peaked at 7.34 per cent in
March. In April the rate was seven per cent and in May 6.48
per cent (both of which are above the Central Banks
inflation target of between four and five per cent, by the
And if there is a lot of money in an economy, businessmen
can increase their prices at will because they are deemed
to have pricing power.
Thats why the countrys bakers can afford to
increase the price of bread when the cost of flour increases
but maintain the high prices when flour costs come down.
The bakers form a judgment that people in the economy can
afford to pay the higher price of bread because there are
more people with jobs, receiving higher salaries, paying
lower taxes and less interest on their loans.
While this line of thinking is reasonable, it ignores the
thousands of citizens who, for one reason or another, have
not been beneficiaries of the current good times.
The issue of why some people have not been able to grab
hold of the golden ring is a whole different discussion.