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Inflation remains a key concern in BSP’s Pacific Markets

Monday, May 6, 2024

Inflation is stable but remains elevated and on a slightly upward trajectory across our Pacific Markets.

Imported inflation through consumer goods and high-priced fuel imports contributed to consumer price index (CPI) increases across the South Pacific, according to BSP’s Group CEO, Mr. Mark Robinson.

“CPI increases are largely attributed to the increased cost of imported goods, including food items, household goods, and fuel,” added Mr. Robinson.

Legislative changes also added to inflation in Fiji and Vanuatu. Increases in the Value-added Tax (VAT) and customs duties in Fiji place upward pressure on prices in that market while a 36% increase in the minimum wage from 2023 as well as supply chain disruptions from natural disasters pose risks to Vanuatu’s inflation rate in 2024.

Mr. Robinson further explained that most monetary authorities in the Pacific Markets are responding to inflation concerns by taking a contractionary monetary stance and increasing interest rates.

“This has the intended effect of tightening money supply to control spending and consumption in the economy, thereby cooling down inflation,” he explained, adding, “these measures, however, also have the adverse effect of restricting access to credit and may hinder economic activity if prolonged.”

However, Mr. Robinson does see some upsides worth highlighting. The increasing visitor arrivals to the South Pacific as well as high prices for key agriculture exports will help to bolster activity at the grassroots level despite the monetary tightening to address inflation.