The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank yesterday revealed that annual inflation for the year to June 2022 increased almost five-fold compared to the previous 12 months to give a stark indication of the cost of living crisis facing many Bahamian families.

The monetary policy regulator, unveiling its July economic update, revealed that the annual domestic inflation rate had increased to 4.4 percent as opposed to 0.9 percent some 12 months ago just one day after the Prime Minister urged Bahamians to be frugal with their spending and warned that the country was “in for a rough ride”.

“Reflective of the pass-through effects of the increase in global oil prices and supply chain shortages, domestic consumer price inflation - as measured by the All-Bahamas Retail Price Index - rose to 4.4 percent during the 12 months to June, from 0.9 percent in the same period of 2021,” the Central Bank said.

“Leading this outturn, average costs for transport rose by 14.2 percent; for communications by 12.2 percent; for education by 2.3 percent; and for recreation and culture by 1.3 percent after posting respective reductions in the prior year. Further, average inflation accelerated for food and non-alcoholic beverages (7 percent); restaurants and hotels (6.8 percent); clothing and footwear (5.4 percent); health (4.8 percent); and furnishings, household equipment and maintenance (2.1 percent).

“Similarly, the rise in average costs quickened for alcoholic beverages, tobacco and narcotics and housing, water, gas, electricity and other fuels, by 2.8 percent each. Providing some offset, the average cost for miscellaneous goods and services decreased by 1.8 percent following a gain of 2.7 percent in 2021.”

Elsewhere, the Central Bank revealed that external reserves ended July at more than $3.33bn driven by foreign currency flows generated by the private sector as tourism and the wider economy continued to rebound. “External reserves increased by $83.6m to $3.33bn during the review month, expanding the $37m accumulation in 2021, buoyed by net foreign currency inflows through the private sector,” it added..

“Contributing to this outturn, the Central Bank’s net foreign currency purchases from the public sector broadened to $54.8m from $15.3m in the preceding year. In addition, the Central Bank’s net purchases from the commercial banks rose to $33.9m from $21.5m in the same period last year. Further, commercial banks’ net intake from their clients grew to $23.1m from $20.4m in the prior year.”

As a result, the Central Bank said there was no threat to the external reserves and, by extension, the Bahamian dollar’s one:one fixed exchange rate peg with its US counterpart. “External reserves are forecast to remain buoyant over the year, ending 2022 above international benchmarks, bolstered by anticipated foreign currency inflows from tourism and other net private sector receipts,” it added.

“Consequently, external balances should remain more than adequate to sustain the Bahamian dollar currency peg... In the labour market, the unemployment rate is forecast to remain above pre-pandemic levels, although decreasing, with job gains concentrated predominantly in the construction sector and the full rehiring of tourism sector employees.

“In terms of prices, inflation is projected to remain elevated, attributed to the rise in international oil prices, higher costs for other imported goods and supply chain shortages, related to geopolitical tensions in Eastern Europe.” 

Foreign currency demand was also elevated as the Bahamian economy recovers from its post-COVID lockdown. “Preliminary data on foreign currency sales for current account transactions showed a $99.7m rise in outflows to $563.1m in July relative to the same period in the previous year,” the Central Bank said. 

“Specifically, payments for ‘other’ current items moved higher by $53.2m, primarily credit and debit card transactions, while oil and non-oil imports rose by $42.4m and by $21m, respectively. Further, increases were registered for transfer payments ($6.7m) and travel-related transactions ($1.7m). In a modest offset, factor income payments decreased by $15.6m, compared to the same period last year.”

In the commercial banking sector, both non-performing loans and short-term arrears declined during July. “Specifically, total private sector arrears were reduced by $27.2m (3.9 percent) to $661.9m, corresponding with a 48-basis point decrease in the associated ratio to 12.2 percent of outstanding claims,” the Central Bank said.

“An analysis by average age of delinquency showed that non-performing loans (NPLs) fell by $23.9m (4.9 percent) to $463.9m, with the relevant ratio lower by 43 basis points, at 8.6 percent, and declines in the NPL rates for commercial loans by 57 basis points to 5.3 percent; consumer loans by 53 basis points to 7.9 percent, and mortgages by 30 basis points to 10.3 percent.

“In addition, short-term arrears (31-90 days) reduced by $3.3m (1.6 percent) to $198m with the accompanying ratio narrowing by five basis points to 3.7 percent. Disaggregated by loan category, consumer delinquencies contracted by $13m (5.9 percent) to $208.5m as both the non-accruals and short-term segments fell by $11.2m (6.7 percent) and by $1.8m (3.3 percent), respectively,” it added.

“Similarly, mortgage arrears declined by $9.6m (2.4 percent) to $392.3m, reflecting respective fall-offs in long and short-term arrears of $7.7m (2.9 percent) and $1.9m (1.4 percent). Further, commercial arrears reduced by $4.6m (7 percent) to $61.1m as the non-performing segment decreased by $5m (9.3 percent), overshadowing a $0.4m (2.9 percent) uptick in the short-term component.”