In face of mounting discussions on the current high inflationary rates, Executive Director of the Saint Lucia Chamber of Commerce, Industry and Agriculture Brian Louisy has called on local businesses to seek alternative supply sources for their goods.
Trading, supply chain and shipping issues were among the key points emerging from the recent Public Consultation on Inflation- organized by the Ministry of Commerce in collaboration with the Ministry of Finance. The presentation dealt with the “very pertinent” subject “ inflation” as well as factors of labour output, exorbitant cost of food and also other matters.
Productivity impacts profitability was another topic under review. And given the “esoteric nature” of this matter, the organizers brought in a mix of technocrats from within and outside the public service, and including a CARICOM representative to provide a regional and global perspective on the subject.
Business technocrats were invited to participate in the discussions on the topic. They were guided Moderator and Economic Development Consultant Dr. Adrian Augier. The panelists included Joseph Cox – CARICOM Assistant Secretary General, Dr. Thecla Fitz-Lewis – President of the National Consumer Association, Brian Louisy – Executive Director of the Saint Lucia Chamber of Commerce, Industry and Agriculture, and Jason King – Treasurer of the Saint Lucia Manufacturers Association.
Inflation
Commenting on the impact of inflation on businesses in the local economy, Louisy stressed that the frequent rise in prices aggravates the consumer.
He said due to these price increases, the Chamber has coined the phrase “price escalation” rather than just inflation. Louisy added, “we have seen prices and the cost of doing business escalate …and these costs are passed on to consumers”.
He noted that the ministry of commerce has employed measures to identify the cause and the source of these price escalation trends that consumers are experiencing.
Towards this end, noted Louisy, the membership is keen on seeking alternative sources of supply for commodities.
He recalled that at the Chamber’s recent annual general meeting (AGM), it was proposed to initiate trade links with Latin America.
The chamber official said, such a development would help “to avoid some of the bottlenecks (in) supply chain (issues) that people are experiencing, and see (gain) low cost of freight, but also see better quality goods at a lower cost from Latin America.”
He explained that external factors, such as the Russia/Ukraine war and the Israel/Palestine conflict has caused several global firms “to shift their manufacturing” to Latin America, including Mexico.
Louisy says the chamber is adamant about “joining that factor …in trying to find solutions, and find ways in which we can mitigate the price escalation issue”.
While providing updates on the current Global Inflation Trends, Gemma Lafeuille, Director of the Research and Policy Unit in the Department of Finance, noted that inflation has been at its highest in the last 40 years.
The ministry official defined inflation as “the general rise in the prices of goods and services in the domestic economy over time,” and inflation is driven by both external and internal factors.
Interventions
Lafeuille said the government has implemented interventions to mitigate the effects of the inflationary effects on citizens in the country.
These measures include:
PAYE Reform – increased threshold from $18,000 to $25,000
– Waiver of VAT on building materials for two years up to August 2025
– Waiver on VAT on Solar PV System components for two years
– Removal (zero rating) of VAT on sanitary napkins and placed on price-control list
– Additional $10m payment of income tax refunds in Dec 2023
– Increase in fuel rebate to fishermen from $1.00 to $2.50/ gallon at a cost of $0.05m
– Increase in teacher material allowance from $600 to $1,400 at a cost of $14m
Lafeuille notes there are downside risks to inflation in the coming months.
Factors that may cause increase in prices are listed as follows:
– Escalation in military conflicts: Russia Ukraine war and Israel /Hamas
– Sharp OPEC +oil production cuts – Causing oil price increases
– Mounting tensions between China/Taiwan – Affecting production and distribution of several goods
– Weather -related shocks and climate change which Disrupt/reduce agriculture production
– Wage increases
Factors that may tame or reduce inflation:
– Further increases in interest rates by central banks and thus borrowing cost
Transmission of cost of goods.
Dr. Thomas Samuel, Trade Advisor in the Ministry of Commerce presented on Transmission of prices in the economy-“Cost push inflation.”
He noted that, as a Small Open Economy (SOE) – increases in global prices of food, energy and other commodities are transferred to the local economy via imports (i.e. imported inflation).
These prices which are the CIF (cost-insurance -freight) value of imported goods serve as input prices for businesses. In addition. government border charges are then applied to determine the landed cost of imported goods.
Businesses then add a 0% margin of profit to the landed cost + transportation (and any other incidental costs) to give the retail price.
In summing up the matter, Dr. Samuel noted that the pattern of price movements of the product samples generally shows a trend increase in prices (thus the rate inflation) during the pandemic about the 2nd qtr., of 2020 up to a peak in the mid to the 3rd qtr., of 2022 due to disruptions to the Global Supply Chains.
The freight component of CIF value started leveling off and coming down from mid-2022 and close to pre-pandemic levels. Benefits may be passed on to the consumer with a lag.
However, he said, though prices may be trending downwards – it is “sticky downwards” and are still above pre-covid levels.
Samuels also notes that the MOC is vigorously pursuing Strengthening the Business Environment – through enforcement of rules of competition.
The Ministry of Commerce is actively working to enhance its capacity in the area of competition as well as to establish the necessary legislative and regulatory framework for the Enforcement of Competition Policy and Rules relating to fair trading and ethical business conduct.
Market Forces
King of the SLMA stated that it is imperative for manufacturers “to remain competitive in the local market and internationally”. He said the challenges faced by producers involves more than “an automatic decision of just passing on costs”, since the producers are often constrained in their ability to do so.
King said the “market forces” dictates the costs of goods and impacts the cost of production and “pricing decisions”.
He explained that local manufacturers compete on a global scale, and even in the local market they are faced with competition from imported goods that are produced by “global suppliers and global manufactures”.
These manufacturers benefit from ‘economies of scale’, he added, because they have larger factories, lower energy costs and also labour costs. He defined it as a combination of “automation and lower wage rates”.
King said with all of these challenges, manufacturers “have to find a way through. In a field that deals primarily with utilisng raw materials, he said, the price of commodities is driven by the rise in shipping costs.
Noting the relevance of this consultation, Dr. Lewis said, inflation impacts consumers in various ways. It affects consumers savings and overall well-being.
In light of these inflationary rates, she said, consumers play a major role. “While inflation is largely influenced by macro-economic factors … consumers (themselves) can take certain steps to navigate and mitigate its impact on their personal finances,” Dr. Lewis contended.
Caricom Secretariat representative Cox said, part of the challenges in dealing with inflation in several countries revolves around the “basket of food” commodity and the need to regulate “price indices”, such as the price of the imports that goes into manufacturing.
He also spoke about “efficiencies” within the regional market and greater opportunities for some efficiencies to be recognized.
On the heels of the pandemic, Cox declared, there is a “golden opportunity” throughout the region “for us to be re-engage in border sharing”.
He said a recent International Development Bank (IDB) publication cited the potential for a USD5Billion market in the region.
In several scenarios, he noted, “the partnership between the government and the private sector becomes paramount …because if the state decides to waive duties, reduce duties and so on …then what we have is a compensate rate mechanism being employed by the private sector.”