Prices at 11-yr high, 12pc inflation forecast

August 04, 2009 12:06:33 PM

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Inflation in Fiji as a result of the April 2009 devaluation is expected to peak at around 12 percent next April, with June registering the highest monthly growth in consumer prices in the past 11 years, said the Reserve Bank of Fiji (RBF).

The RBF said inflation was expected to moderate at around two percent by the end of 2010.

However, “higher than expected oil prices and strengthening of currencies against our local dollar pose upside risks to this assessment”, according to the latest issue of the RBF’s monthly economic review.

The RBF said consumer prices rose by 2.9 percent over the month of June 2009 - the highest monthly growth in consumer prices since February 1998.

The inflation rate in June was 2.3 percent, with price increases across all categories.

“The pass-through of the recent devaluation has started to be reflected in the price survey and this trend is expected to continue in the coming months,” said the RBF.

Consumption activity remained subdued, evident in annual declines in Value Added Tax collections (2 percent), new vehicle sales (22 percent) and import payments (14 percent).

“Recent job losses in certain industries and reduced recruitment intentions are also suppressing consumption activity,” the RBF said.

Cumulative to May 2009, domestic export earnings fell by 16.4 percent led by declines in sugar, mineral water, garments and timber, which the central bank said more than offset increases in earnings for gold, fish, molasses, sweet biscuits and other domestic exports.

Tourist arrivals also registered an annual decline of 19.4 percent cumulative to April.

“There is optimism in the industry that these numbers will improve, spurred by a weaker Fiji dollar as well as the huge discounts offered by hotels.”

The RBF said the growth in fish exports remained firm over the year while in addition, gold output continues to slowly improve since operations at the Vatukoula gold mine recommenced in May 2008.

Commercial banks’ lending rose by an annual 8.6 percent in June while that of licensed credit institutions noted a slight increase of 3.5 percent in the same month.

High levels of liquidity continue to subdue lending rates, the RBF said.