Central Bank Governor says ‘no need to panic’

Food prices might be soaring but there is no real need for panic,  according to Central Bank Governor Ewart Williams. His assurance came at a media briefing when he presented the Monetary Policy Report for September 2004 at the bank’s auditorium yesterday.  Williams said what  was “worrisome was not the rate of inflation, but the inflationary psychology that seems to be pervasive. “One has to manage the panic being created by the rampant increase in food prices,” he said. What can happen, he said, was that distributors, in anticipation of  price increases on their incoming shipments, would attempt to seek their economic interests by increasing prices on current stocks.

In addition,  this could create a huge ripple effect as trade unions may now seek to negotiate better wages for employees with a perceived rise in cost of living expenses, Williams said. This ripple effect could actually end up becoming a self-fulfilling prophecy, he warned. Although there is no direct need for panic, the increased inflation, coupled with the consumer’s perceived inability to deal with it, may actually cause a significant rise in food prices, “and in reality, make the cost of living more difficult to deal with,” he said. While in 2003 the annual average increase in the food  index was 13.8 percent, Williams noted that in the first eight months of 2004, the sub-index rose by 10.4 percent. Williams admitted that the “tremendous national concern” over food prices lies not with the general price increase, but rather with the increase in certain items.

For the period January 2003 to July 2004, there was a 79.4 percent increase in the price of cooking oil (corn), 70.5 percent increase in vegetables, 48.7 percent increase in chicken parts (fresh, chilled or frozen), 12 percent increase in packaged rice, and 17.8 percent increase in packaged flour. Other items that increased include fish, powdered milk, poultry (fresh, chilled or frozen), eggs, butter and fruits. Williams said the public may be in a state of panic over these increases and may feel a certain sense of pressure. While Williams insisted he was not downplaying the increase in food prices, he pointed out that the general population spent less than one third of its income on food and while there are certain sections that do spend more than that, it was  not indicative of the general population. In fact, he said TT was “lucky,” because due to the domestic pricing of oil, “we do not feel as great an impact as other countries.” The increase in food prices was not unique to TT, but in fact was an international phenomenon, he added.

Among the  factors contributing to rising food prices were the buoyant prices for corn, soyabeans and wheat due to poor weather conditions and higher costs of cultivation because of rising fertiliser costs. Transportation costs also play a part as worldwide demand from China and the US, as well as rising oil prices, have increased the cost of fuel, and as a result, increased shipping rates. Exchange rate movements also led to the rise in food prices, as the depreciation of the TT dollar relative to the euro has increased the cost on items originating in Europe. Port charges are also responsible for increased food prices, as the level of the port charges and the inefficiency of operations continue to have a significant impact on the domestic price level.