Inflation drops

FIJI’s annual inflation rate recorded a major drop to 2.5 per cent in May; making it the lowest over the past two years.

This was revealed in the Reserve Bank of Fiji’s Economic Review for June released on Monday.

Because of the post-effects of Severe Tropical Cyclone Winston, the inflation rate had mainly remained high from August last year until the first four months of this year.

The central bank reported that inflation had dropped from 4.1 per cent in April, but was still too high after remaining above the 5.0 per cent mark in the first quarter.

Higher inflation was recorded in January by 6.8 per cent, 5.5 per cent in February and 5.6 per cent in March from 2017.

According to the recent review by RBF, the lower monthly inflation outturn for May was underpinned by declines in the food and non-alcoholic beverages; clothing and footwear; communication; recreation and culture and miscellaneous goods and services categories.

The central bank also expects inflation to be around 3.0 per cent by the end of the year.

The inflation rate in Fiji had averaged at 3.95 per cent from 2003 until 2017, reaching an all-time high of 10.50 per cent in April of 2010.

Inflation is the rate of increase in the overall level of prices of goods and services in an economy over time. It is generally reported as a rate of increase of prices over a period, usually a year.

According to the central bank, in normal economic circumstances, if the level of money supply grows faster than the real output, it can cause inflation, hence reducing purchasing power at a point in time.

However, inflation is not only influenced by monetary conditions because supply and demand conditions can also lead to price changes.

For instance, supply shocks caused by disruptions in production (such as from natural disasters) or higher production costs (such as from increases in wages, rent or oil/fuel prices) lead to “cost push inflation” as these factors limit the supply of goods and services.

An increase in inflation can also mean that the amount of goods that your money can buy decreases along with its purchasing power.

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