The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Inflation “may not be as frightening as it was a year to 18 months ago”, a governance reformer argued yesterday, despite food and beverage costs rising by almost 13 percent during the year to April 2023.

Hubert Edwards, the Organisation for Responsible Governance’s (ORG) economic development committee head, told Tribune Business there were some signs that the US battle against inflation is having success and that this could eventually rub off on The Bahamas given its status as this country’s major trading partner.

Acknowledging that food and energy costs continue to be the “major driver” of Bahamian inflation, and the sustained upward pressure on multiple costs across the economy, he added that this nation may be able to afford “to wait and see” if the Federal Reserve’s concerted interest rate rises can bring US inflation down closer to its 2 percent target within the coming months.

“Inflation is always a concern because it reduces buying power,” Mr Edwards told this newspaper. “If there’s any good news on the inflation front it’s that the US seems to some extent to be levelling out on inflation and, because it’s our major trading partner and The Bahamas is a net importer of inflation, that augurs well for the country.”

US inflation dropped to 3 percent in June, representing a two-year low, but consumer prices remain high. The increase was the smallest for more than two years since March 2021 and down from a four-decade high of 9.1 percent in June 2022.

“In The Bahamas, the big thing which is affecting us is that inflation on food and energy are the major drivers of local inflation,” Mr Edwards added. “Those two areas are also maintaining a higher rate than in the US. I think overall, while it seems with us for a while, inflation may not be as frightening as it was a year ago or a year-and-a-half ago, so maybe we can wait and see if the US gets inflation down to its 2 percent target.

“If that happens this year it could be a major shift on the local front if they get anywhere close to that.” However, Mr Edwards warned that further interest rate hikes by the US Federal Reserve will increase debt servicing costs that have to be paid by Bahamian taxpayers as costs on the Government’s US dollar variable rate bond issues will also rise.

Meanwhile Kwasi Thompson, the Opposition’s finance spokesman, urged the Government to do more as inflation “continues to ravage ordinary Bahamians” through the continuing cost of living crisis driven by price rises such as the 12.7 percent food and beverage hikes in the year to April 2023.

He accused the Davis administration of making this worse by the up to 163 percent increase in Bahamas Power & Light’s (BPL) fuel charge, and 71 percent rise in the all-in cost of electricity, due to the failure to support the utility’s fuel hedge with more cut-price oil purchases.

As a result, Mr Thompson said energy cost rises were having a “devastating inflationary effect” on Bahamian households and businesses. He added: “Bahamians have seen their light bills double and triple, and also face a second whammy when businesses have to increase their prices to allow them to meet higher energy costs.”

He called on the Government to bring further relief to vulnerable Bahamians by expanding the electricity assistance programme under social services; eliminating VAT on breadbasket food items; and providing energy and inflation assistance grants for small businesses via the Small Business Development Centre. The ex-minister of state for finance also urged the provision of free energy audits and a public education campaign on energy saving measures.

John Rolle, the Central Bank’s governor, warned earlier this week that Bahamians will have to wait for BPL’s soaring energy bills to ease before “the moderation of inflation starts to look more like” other countries.

Acknowledging that the “highest level of inflation we have observed in The Bahamas did occur post-2022”, as numerous families continue to grapple with the cost of living crisis, Mr Rolle said the country’s status as an importing nation means any easing of prices here will occur after the same is experienced in the US and elsewhere.

“The point to stress for The Bahamas is that the timing is delayed partly because the adjustments that we are seeing, save the electricity and related costs, are much later than those that are already taking place in other countries,” he added. “To some extent we are going to have to experience the full amount of whatever adjustment and catch up that is likely to happen in the electricity costs before we see the inflation moderation start to look more like what is happening abroad.

“It should be stated that the peak rates of inflation that we have seen in The Bahamas so far did not reach the rates that were attained in the US.” The Central Bank, in its just-released monthly report for June, said: “Average domestic consumer price inflation, as measured by the All Bahamas Retail Price Index, firmed to 5.6 percent during the 12 months to April from 3.8 percent in the corresponding 2022 period, reflective of the pass-through effects of higher international oil prices and other costlier imports.

“Specifically, average costs increased for recreation and culture (16.9 percent) and miscellaneous goods and services (0.9 percent) after registering reductions in the previous year. Further, average inflation accelerated for food and non-alcoholic beverages (12.7 percent), restaurants and hotels (11.1 percent), health (5 percent), and housing, water, gas, electricity and other fuels (4.5 percent).

“Providing some offset, average inflation moderated for transport (8.9 percent), clothing and footwear (3.5 percent), alcohol beverages, tobacco and narcotics (3.4 percent, communication (3.2 percent), furnishing, household equipment and routine household maintenance (1.8 percent) and education (1.4 percent).”