Nipping inflation

Prime Minister Patrick Manning’s reported inflation target rate of seven percent and Central Bank Governor, Ewart Williams’ admonition that he would not like to see the rate go beyond four percent could easily have been offered by persons operating in worlds apart — one in a developed nation, the other in a developing country. Williams’ conservative approach was more in keeping with the needs of Trinidad and Tobago, while Manning’s should be a caution to trade unions to keep wage demands in check, and in the context of increasing globalisation, to assist manufacturers and agriculturalists to seek ways and means of increasing productivity.

Unfortunately, trade union leaders particularly in areas where it is critical to this country’s development to have, for example, its water, telephone and electricity services as well as its energy and energy based industries lean and trim, increasingly resist the laying off of workers made redundant by technology. In turn, they demand two-digit salary and wage increases, even as they find it difficult to concede that because of improved technology one man can do the job that two, three or even four men are being employed to do.

All too many trade union leaders, small manufacturers and agriculturalists because they decline to see the large picture, contribute, however unintentionally, to the inflation rate. Meanwhile, imported inflation, at times through international demand outstripping production, continues to impact unfavourably on the domestic inflation rate. There are such known examples as international prices for crude, flour and recently the dramatic upward push on steel prices because of higher steel demands in a resurgence of heavy construction in China and Iraq.

Many Trinidadians and Tobagonians mistakenly tend to think of the effects of inflation strictly in terms of the higher costs of foodstuff, gasolene at the pump, and goods generally. What should be carefully examined, however, is the steady decline in real value of the Trinidad and Tobago dollar. And this should be done not merely of seeing this value in relation to what a basket of goods costs today as opposed to what it cost in January or last year, but the negative impact of the inflation rate on savings, stocks and shares, Government securities and units, whether of the Unit Trust Corporation or of banks.

If for example you receive an annual five percent rate of returns on savings, shares, then using the reported Manning inflationary rate target of seven percent, then the real value of your investments are worth less than their normal value. In other words less than when you purchased them, and this even though dividends, albeit five percent, are being paid. An increase in productivity by workers, along with a retooling by industries, unless there is undue buffeting by imported inflation on the domestic inflation rate, can lead to the rate hovering somewhere below four percent. But do our trade union leaders have the strength to settle for modest salary and wage increases as well as agree to the severing of redundant workers, and small manufacturers and agriculturalists the foresight to retool, to acquire new technology? Or are they prepared to be swamped by increasing globalisation?