Barbadian consumers are being put on notice not to expect any ease in prices, at least in the foreseeable future, as importers continue to battle with global supply chain disruptions.
This caution came as Governor of the Central Bank Cleviston Haynes reported it was possible for the Government to provide an ease in some taxes, but it would have to weigh that carefully against possible impact and also search for other revenue streams.
He made the comments on Wednesday as he delivered his Barbados economic review for 2021.
Haynes noted that while freighting costs have “eased off the highs of late last year”, prices were likely to remain elevated, at least for the first half of this year, though it could improve based on global economic recovery.
“Sharp price increases, together with further disruptions to the supply chain, could have a negative impact on the pace of recovery,” he said.
“From our perspective, right now what we see is that prices will remain elevated. As always, some prices will go up and some will come down, but I think on average prices will remain elevated . . . . Based on what we have seen with how prices moved in the last half of 2021, it is likely to see that moving average inflation rate going up and possibly the point-to-point rate going up in the short term,” he said.
The local business community has been crying out for reduced taxes on imports, which it indicated could provide some ease in prices for consumers. There have also been growing calls for the Government to review the burdensome Garbage and Sewage Contribution (GSC) levy, especially for the agriculture sector, so that meat and vegetable prices could be lowered.
Haynes agreed that a reduction in freight costs could help to stabilise prices in the event of ongoing global pressures, thereby providing a “small assistance” to consumers.
However, he explained that while it was possible to review the taxes, it meant that an alternative source of revenue would be required, or the Government would have to find ways to further slash its expenditure in some areas.
The Central Bank Governor reported that the global trend of rising inflation was reflected in domestic prices in 2021. The retail price index at November was 4.6 per cent higher than at 2020 year-end, driven in large measure by higher import prices.
“Soaring international freight costs arising from disruptions in the global supply chain added to the hikes in energy and food prices caused by the revival of global economic activity. Domestic food prices were elevated mainly due to meats and vegetables,” Haynes reported.
He noted that while price increases were also acutely felt in gasoline, diesel and electricity, the continued discounting of clothing, footwear and furnishing and household equipment dampened the domestic inflationary pressures somewhat.
Presenting an economic outlook for the Barbados economy in 2022, Haynes said he was optimistic that recovery could be accelerated based on the economic activity witnessed over the last nine months of 2021.
“This should be driven in part by the continued revival of the tourism sector. All indicators are for a strong, though partial, recovery in the first quarter, aided by the favourable impact of the influx of visitors for the English cricket tours, the expansion of airlift into the country and the positive benefits of enhancements to the tourism plant,” he said.
Haynes noted that in addition to the ongoing five-match Betway T20 International Series between West Indies and England in Bridgetown, the island was in line to welcome about 5,000 more English visitors in March for a Test match.
“I think this will have a positive impact on our tourism because on the one hand, it fills rooms, but when they come they spend and, therefore, our small business sector benefits from their presence,” he said.
The economist said he was also encouraged that some large-scale tourism development projects set to get started this year, infrastructure upgrades by the Government, and other smaller private sector investments should provide a further boost to the revival of economic activity.
This, he said, should result in positive spill-overs and new jobs.
“The Bank has developed multiple scenarios for growth but is optimistic that, absent the re-imposition of travel restrictions or the deepening of the supply chain disruption or significant geopolitical shocks, there is potential for a robust recovery leading to double-digit growth in 2022,” said Haynes, who indicated that the 14.2 per cent growth rate reported in the Pre-Election Economic and Fiscal Update Report was a best case scenario “if everything were to go perfectly well”.
The Central Bank boss reported that the stock of international reserves increased by $398 million during 2021 to reach a record $3.058 billion, or about 9.6 months of imports, driven mainly by policy-based borrowing from the multilateral financial institutions and the proceeds of the new allocation by the International Monetary Fund.
There was a slight improvement in government revenue, which is around 28.3 per cent of GDP for the current fiscal year, when compared to 28 per cent of GDP during the same period in the prior fiscal year.
Government expenditure increased last year as the Government sought to address the challenges associated with the COVID-19 pandemic.