DERICK LATIBEAUDIERE, Governor of the Bank of Jamaica, is forecasting that Jamaica's inflation rate for the current fiscal year may reach 13 per cent. This is not good news. Inflation is a cruel hidden tax which falls hardest on the poor who have little or no surplus disposable income to deal with a rise in the cost of living. Some experts and practical businessmen believe that, if put to an unavoidable choice between high interest rates and inflation, high interest rates is the lesser of the two evils. The swing factor in this equation is the exchange rate: if this is not controlled by high interest rates the cost of raw materials and finished goods imported from abroad goes up which, in turn, pushes up the final cost of goods and services to the consumer.
Once again we are about to enter the 'force field' of inflation psychology, stronger in its grip than gravity. Trade unions, already displaying a new militancy as witness their stance in the current redundancy impasse with the National Water Commission, will be panting to negotiate new wage increases in excess of the projected inflation rate, perhaps as high as 20 per cent. For private sector companies to survive or remain profitable, this additional cost has to be passed on to the consumer, which adds more fuel to the inflation fire. Companies, which are even marginally profitable, will feel morally obliged at their annual review of salaries and wages to replace the purchasing power of their employees' dollars by whatever amount the inflation rate turns out to be.
Another aspect of inflation woes waiting in the wings can be offset by growth in the real, productive economy and we welcome the good news that Gross Domestic Product (GDP) appears to be growing at a rate just over three per cent per annum. But we doubt that this macro-economic statistic will be much consolation to parents confronted by the annual agony of trying to find enough money to send their children to school in September. Due to some of the inflationary factors, which are back in the system, the cost of school books has skyrocketed and this is causing more parental anguish.
The powers that be will have to walk a fine line between trying to lower interest rates and at the same time keeping inflation under control.
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