Can politicians restrain themselves?

The Bank has identified several factors contributing to rising inflation. These include high food prices, rising wage rates due to a shortage of workers in both the unskilled and skilled sectors, and domestic demand. The domestic demand comes from two sources: first, increased consumerism by citizens and, second, the Government's expansion in public sector investment - i.e. the various mega-construction projects within the capital city, as well as the Tarouba Sporting Complex and other ventures.

The Bank has suggested that the Government cut back on some of its developments in order to curb inflationary pressure, and Junior Finance Minister Conrad Enill has recently hinted that the Government will do so. However, the proof of the pudding is in the eating, and we are still waiting for the Finance Minister, Prime Minister Patrick Manning, to specify exactly what projects have been put on hold or slowed down.

The Bank itself took measures in 2005 to contain inflation, raising the Repo rate on four occasions and raising the deposit requirements of commercial banks. Such measures, however, tackle inflation only as a monetary phenomenon. It may be, however, that other factors, related to the Government's social and political policies, are also affecting the rise in the costs of living. What impact is the crime rate, particularly murders and kidnappings, having on foreign investment and local business? Has flooding and the disbursement of Caroni lands affected agricultural output in such a way to drive inflation up? What is the economic effect of the Government's housing programme? How has free education and CEPEP impacted on the labour supply to the private sector?

As the questions themselves demonstrate, there are no easy answers. By all standard signs, the economy is doing well. With the energy sector seeing an 11 percent increase in productivity, the Gross Domestic Product has grown by a healthy seven percent. There has been four percent growth in the non-energy sector, although a good part of this is in construction driven by the same Government projects which may be pushing up inflation. The Bank also noted that the Government has run up a deficit of nearly 10 percent in the non-energy sector — a development initially masked by the growth in the energy sector.

Indeed, the standard indicators may well be masking all kinds of economic warts. But citizens are acutely aware of the effects of such defects in their daily living, when they discover at the end of the month that they have spent more and bought less. It is then that demands for wage increases or for price controls become voluble. But giving more money to people or interfering with market forces doesn't solve the problem, since prices or taxes always go up to meet the increased money supply or the reduced supply of goods. This is a point, however, understandably glossed over by trade unionists.

Managing inflation is no easy task, and the Central Bank appears to be doing all in its power to keep the cost of living down. In the final analysis, though, the Government has to pursue a rational and responsible fiscal policy in order to ensure that the economy is managed well. However, with a general election due next year, we worry whether the politicians in power would be able to restrain themselves.