The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian small businesses were yesterday said to be bracing for up to a 25 percent drop-off in consumer demand compared to pre-COVID levels as inflation chips away at buying power.

Mark A Turnquest, a consultant who works with numerous micro, small and medium-sized companies (MSMEs), told Tribune Business that “the chickens have come home to roost” with The Bahamas unable to combat surging imported inflation that is driven by factors outside its control.

And, with the possibility of conflict between Russia and the Ukraine looming ever larger, he warned that rising energy costs driven by spiking global oil prices will “have a trickle down effect” that is felt by all Bahamian households and businesses.

“We’re hoping there is only a 15-25 percent reduction in consumer spending compared to 2019,” Mr Turnquest told this newspaper. “2019 was an excellent year; it was a stellar year. Inflation and rising costs, it is a challenge.

“My clients have also had problems with California. Some of them last year got stuff from California. There were shipping delays, and they had to reorder from Miami. That was a big, big problem.”

To remain competitive, Mr Turnquest said he had advised some of his clients to not pass on all the inflationary pressures to consumers in the final prices they offer. “I have already told them to be marginal in their approach to prices increases because you want to save face,” he added.

“Obtaining a new customer in this environment is very difficult and time consuming compared to keeping your existing customer base. We’re bracing for a challenging year, but it is expected. All of my clients are expecting it to be a very challenging, and the only good thing they see coming is a reduction in COVID-19’s impact in terms of the closure of their businesses.

“We see the position of the Government, doing it’s best not to close us down, but inflation is not going to look good at all. The VAT rate cut to 10 percent was some minor assistance in reducing operating expenses,” Mr Turnquest continued.

“It was short lived because inflation started to hit instantly. What we found is inflation and high prices came three to four weeks after the rate cut. All it did was help one cycle, one month. After that other prices increased.”

Given that consumer spending in January and February was typically depressed in the immediate aftermath of Christmas, Mr Turnquest said the full extent of inflation’s impact will likely be felt in March and as the calendar heads towards Easter in mid-April.

US inflation as measured by the Bureau of Labour Statistics hit a 40-year high in January 2022 with a 7.5 percent year-over-year increase. The 12-month rise in the US consumer price index (CPI) survey, which measures the costs of a wide variety of goods, was the largest since February 1982. It also rose by 0.6 percent month-over-month compared to December 2021.

The US food index rose 0.9 percent in January following a 0.5 percent increase in December, according to reports, while the energy index also increased 0.9 percent during January 2022. Even after stripping out volatile food and fuel prices, US inflation still rose by 6 percent on a yearly basis. Used cars prices were 40.5 percent higher in January, while housing costs were up 4.4 percent.

Inflation’s impact at home is likely to be worsened by The Bahamas’ consumption-based tax structure, which means that import tariffs and border VAT - which are charged as percentages - will also increase. The amount of VAT dollars paid by the end-consumer will also increase.

The one mechanism at the Government’s disposal to mitigate inflation’s impact is to thus reduce taxes on essential commodities, such as food and fuel, but it is highly unlikely to do this as the post-COVID fiscal crisis means it needs every cent of revenue it can get.

Inflation, described as a sustained rise in prices across the board, devalues savings and causes particular problems for those on fixed incomes such as pensioners. It also raises the cost of living, reduces living standards and narrows disposable incomes, with those less well-off inevitably hit hardest.

And, with many Bahamian households still struggling to rebuild jobs, livelihoods and incomes following the COVID-19 pandemic, the spectre of inflation could not have emerged at a worse time. It will also likely result in increased demands on the Government for social assistance, and slash purchasing power for many local consumers.

All of which is bad news for a Bahamian economy which is thought to be two-thirds driven by consumption or consumer spending.