Dear Editor,
INFLATION has hurt consumption of the bulk of the population over the last year. This does not have as much to do with too much money chasing too few goods (that triggers inflation as is taught in economics), but simply brought about by a shortage of goods resulting from flooding and high transportation costs of imports attributed to the pandemic. And President Irfaan Ali’s budget has addressed both.

The government knows that inflation has impacted the working class. And that is why it has taken measures to reduce various taxes and provide subsidies to reduce the costs of goods. These will redound to the benefit of consumers, providing the wholesalers and retailers pass on to consumers the reduced costs of doing business.

In conversing with ordinary Guyanese, housing (rental and mortgage), transportation and utilities may not have not gone up that much. As related to me, the greatest inflationary effect has been on food, which has particularly impacted the poor and working class more than other sections of society. The prices of all goods have gone up, with some foods in particular, by multiples the price they were sold a year ago. Food has seen the fastest and highest increase in decades. The government has recognised that food prices have gone up considerably and has responded wisely in the budget to address rising food and energy prices to bring the costs down through various measures.

Food and energy are volatile and are subjected to price swings on the upside or downside. Income may go up once a year or not at all, but consumers are hit with higher costs on one thing or another week after week over the last nine months. Prices have been affected by rising costs of energy and transportation (shipping from overseas ports). Government has no control over either one as they are determined by market forces and availability. But government has reduced taxes on energy and on the taxes of imports to bring down prices. What government needs to do is to check on whether the importers are passing on the reduced costs of doing business to consumers. If they are not, then there should be some kind of enforcement mechanism.

Regardless of the rate of inflation, the wealthy class will not reduce consumption. But the working class and the poor will be severely affected by inflation if the rate of wage increase does not keep pace with the rise in prices. As complained to me, retirees, pensioners, and the poor have found it difficult to pay for certain items and therefore have consumed less. Ideally, wages or incomes should keep pace with inflation and if it does not, then the working class and the poor will have to cut back on spending. This is what has happened in the country over the last year as consumers complain that they can’t afford to shop and to buy certain goods. Market vendors have also complained that they are not making a living because shoppers lack purchasing power to buy the goods which they have traditionally consumed.

From an economics point of view, households can avoid many ‘luxury’ goods, eating ‘cheaply’ though not healthily in order to stretch their fixed budgets. But there are certain basic staples that they cannot avoid – flour, potatoes, dhal, rice, cooking oil, kerosene (gas), onions, tomatoes and other key vegetables, among other basic goods. The government must focus on reducing the prices of these essential items and indeed government has taken measures to reduce their costs of production and imports. Government has reduced the costs of imports at the domestic ports by lowering duties. One drawback is, imports may be cheaper than local products with consumers opting for foreign products, and as such, domestic industries are thereby affected, resulting in loss of jobs and incomes. Reducing the price of fruits and vegetables is more difficult as there are no taxes to reduce or eliminate in their sales. But government can offer subsidies to farmers in the price of seedlings and fertilisers to reduce costs of cultivation and harvesting with the expectation that savings would be transferred on to consumers. In fact, government has been helping farmers.

There was a shortage of fruits and vegetables resulting from damage to crops last May and June. Government provided grants to farmers to help them re-plant, as well some seeds, seedlings, and fertilizers. Cash crops should become plentiful in the months ahead, resulting in lower prices. Also, President Irfaan Ali has assured the public that energy costs and food prices will start to fall soon.

Prices will moderate as goods become plentiful and as pandemic-related distortions (such as supply-chain costs), ease. The passing of base effects and the easing of supply-chain constraints should slowly bring inflation down. The fact that people are not consuming certain goods, or doing so in fewer quantities, will lead to surpluses that should themelves bring down prices.
Yours sincerely,
Vishnu Bisram