Dear Editor,
Recently, there has been chatter about one of your editorials, titled Big Market Inflation, seemingly by some who have a limited understanding of what causes inflation, as their solutions are by themselves, inflationary, making the situation worse. So, let’s start by defining the economic term, inflation. Inflation is the increase in the money supply not supported by an increase in the production of goods and services leading to an increase in prices. Very few policymakers, even in developed countries, understand this as seen in the USA within the last few years, when workers were required, by the pandemic, to lock-down at home but were given monetary support during that time, a recipe for inflation. They were not producing but spending from handouts the government provided, with accompanying inflationary pressures, which its Central Bank is now trying to contain by demand-busting measures of increasing interest rates and decreasing the money supply (selling Treasury bonds).
By this definition, the Guyana government’s budget, which increases outlays by over 40% compared to a year ago, is inflationary in the short-term, by increasing workers’ disposable incomes through income tax applications, and monetary increases in support to school-aged children, pensioners, and low-income consumers. But because the budget contains supply-side measures to reduce energy costs (gas-to-shore energy, 33 MW photovoltaic, Amaila Falls hydro, and oil refinery projects), reduce food costs (farm to market roads), and reduce travel time (new Demerara & Corentyne Rivers crossings, upgrade of ECD, EBD, WCD highways), the short term inflationary consequences will be offset by price reductions from these supply-side measures. So, the pain is only temporary from the mistiming.
The definition of inflation also assumes a market environment where companies do not have market power. Companies not operating in competitive markets are subject to regulation to avoid rent seeking, the exploitation of consumers. Companies such as utilities and banks are highly regulated, otherwise their outputs, conventional necessities, could reflect uncompetitive pricing. When regulation of these companies is lax, prices can soar as seen recently by a bank which pays less than 1% return on its annual debt/CD loans, but earns more than 70% on its equity, an incomprehensible relationship of debt to equity yields. Such market power, allowed by the regulator, is inflationary. And now, back to the Big Market Inflation.
As a Pomeroon farmer, I’m not aware that farmers are receiving higher prices for their produce, so the price increases observed at the market is basically generated in the distribution/selling process. The higher prices tend to persist because consumers don’t have perfect information about the market and continue purchasing from the same supplier, assuming prices overall are similar. The government, Stabroek News and other media can help in this regard by doing comparison shopping and indicating where the lowest prices exist. Encourage suppliers to submit verifiable price data which will get published under a weekly column, which column undoubtedly would become popular with your price-conscious readership. Stabroek News would thus become an enabler of a competitive fresh-food marketplace. Suppliers with high prices will lose business and seek to lower prices, and consumers will have better information and thus make informed choices.
Sincerely,
Louis Holder
