True course of inflation

THE EDITOR: If Nyla Barran or anyone else believes that the minuscule demand of the Trinidad and Tobago market is likely to increase the cost of a commodity, especially in an economy as import-dependent as ours, they are living in a dream world. The price increases we are facing are all imposed on us by the increases in the costs of these products on the world markets. If the price of steel on the world market increases, the price on the local market increases, frequently by a multiple of the external increases.

The cost of labour in the production of these consumer items is minuscule, and reducing because of the increasing use of technology. There are few commodities, other than the service sector, in which the cost of labour exceeds ten percent of the cost of production. Any increases in labour costs is likely to have only a marginal effect on the cost of production. “Cost-push inflation” is the economic theory of the past. “Demand-pull inflation” is the new reality. Prices are increased because of a lack of competition and because there is so much demand pursuing a limited supply. Examine the situation in any of the areas in which inflation is occurring and you will see the same thing.

For a real-life lesson, look at what is happening in the world oil markets. India’s and China’s increasing demand for oil is creating tremendous speculation in oil futures, with its consequent effects on world commodity prices. This has nothing whatsoever to do with labour costs but in fact is price-gouging by producers. You can be sure that it is the same thing happening on the local market as well, in every area of economic activity. These are the new realities of the post modern world, not the outmoded assumptions of the economic primers.

KARAN MAHABIRSINGH
Carapichaima