T&T inflation higest in 14 years, food inflation up 70%

The governor of the Central Bank of Trinidad and Tobago is worried about the economy with inflation, which currently stands at 14.8 per cent, at the highest level in 14 years driven mainly by food price. Ewart Williams noted Monday that in the past year food prices have gone up by 70 per cent.

Williams noted that while the global community is reeling from a financial crisis and recession Trinidad and Tobago continues to spend with consumers racking up credit cards purchases totalling more than TT$1.5 billion.

Williams said the reduction in demand for oil and gas would continue and create a slowdown for Trinidad and Tobago and the Caricom region. The ripple effect would adversely affect the Trinidad and Tobago economy because the traditional Caribbean importers reduce their demand for goods and services for goods from Trinidad and Tobago.

He pointed out that Real Gross Domestic Product (GDP) slowed this year, while inflation rose sharply to its current level of 14.8 per cent.

Commenting on other factors impacting on the economy, Williams said while unemployment rate stands remains low (4.6 per cent compared to six per cent last year) the Bank's financial experts have concluded that economic growth in 2009 would slow to about two per cent.

Williams said the current economic situation has put extreme stress on people because real wages have declined sharply. And he warned that the country could be in deep trouble if it allows demand for high wages to be granted with a corresponding increase in productivity.

Such a "wage spiral" would not be effective because prices would inevitably catch up with wages since one would be chasing the other. He suggested increased dialogue between workers and the government to address the issues of wage demands.

Williams said the country is not a a recession since there is still positive economic growth. But it is slower, and with the global economy in sharp decline through an international recession there is a need to be cautious. A recession is defined as a economic contraction in two successive quarters.

The top banker is concerned that with oil prices way below the national budgetary expectations there is little chance of cutting inflation in the near future to single digits. He also said there would have to be fiscal readjustments. However he advised that it won't be a good move to cut back on projects already underway.

He cautioned the government to focus on cutting inflation, noting that the 70 per cent rise in food prices is "mind-boggling. It is the single most important factor in driving inflation to its current level, he noted. In September, food inflation was up 35 per cent.

Williams noted that businesses are becoming quite concerned and that is a signal of declining export demand in Caricom. And he said the business environment would impact employment.

"One thing we need to be clear about is that unemployment is unlikely to remain forever at 4.6 per cent but will fluctuate in line with business conditions," he said.

"If we don't get our act together, we could find ourselves in a much worse scenario," he warned.