Work productivity

Mr Williams’s argument was that high energy prices were causing inflation world-wide, but that this country was shielded by our ability to absorb the prices because of our oil and gas production. However, if an insufficient focus on agriculture is the key factor as Mr Williams asserts, then it logically follows that increasing agricultural production should keep inflation under control. And, indeed, Mr Williams had some excellent suggestions in this area, recommending land reform, incentives for farmers, and flood control measures. He also noted that specific measures in the last Budget that should help control inflation — the bulk importation of certain foods, new agricultural production of Caroni lands, and the smart card.

Now it is certainly important to develop the agricultural sector, but will doing so really control inflation? Agricultural production contributes a mere two percent to the country’s Gross Domestic Product, and we doubt that consumers buy so much fruits and vegetables that increased production in these areas would significantly reduce inflation. Even if we factor in animal husbandry, the recent increase in the price of chicken, which is the main source of protein for Trinidadians, has been dictated by external factors. In other words, we can only see increased agricultural production impacting significantly on inflation if such production helps increase exports.

In this regard, it was serendipitous that Mr Williams made his remarks at a breakfast meeting organised by the Trinidad and Tobago Manufacturers Association (TTMA). The Central Bank governor was right on target when he said that preventing inflation required wage increases to be tied to worker productivity. This, clearly, is not the principle that informs the functions of CEPEP, or URP, or the many construction projects to be executed by government’s Urban Development Corporation of Trinidad and Tobago. Yet Mr Williams had nothing to say about how these programmes may be impacting on inflation. The manufacturing sector also displayed its own limitations when its spokespersons argued that liberalisation has put manufacturers in danger of too much competition. The implication seems to have been that protectionist measures would facilitate competitiveness — an argument that is borne out neither by experience nor by solid economic principles.

While economists still do not know for sure what causes inflation, it is a general truth that a government catering to special groups, whether it is unskilled youths or local manufacturers, helps drive inflation up. This is because such favouritism means taking resources from one sector to support another.

This is hardly ever done overtly, but the eventual effect is to misalign the money supply with productivity. Welfare programmes, full employment policies, and a minimum wage must always be paid for by someone, who is usually the taxpayer. These, in our view, are the main factors causing the present inflation. And, with the Christmas and Carnival seasons coming, consumer spending is going to make the situation worse before it becomes better.

The Central Bank thus has its work cut out to implement monetary policies that will help control inflation. Increasing the repo rate to six percent will help, but the Bank can do only so much. Much depends on government policies within the coming years, and the Central Bank governor has a duty to bluntly tell those in political office what needs to be done.