Inflation outlook
p. 44 · Read in the full issue
for Tonga poor
TONGA’S inflation outlook is poor because the full impact of higher petroleum prices caused by the Gulf Crisis have not fully worked their way into the Consumer Price Index (CPI), according to the quarterly survey by the National Reserve Bank of Tonga.
Power charges were increased by 38 per cent at the start of January, and lagged indirect responses to previous price increases are still working their way through. The rise in port and service taxes will further stimulate inflation.
The inflation rate reached 15 per cent by the end of 1990 and the report said this was Tonga’s most pressing economic and financial problem with the imported component of domestic prices playing a major role. The imported component of the CPI totals 55 per cent of all consumer goods and services. This was exacerbated in the December quar ter of 1990 by a weaker Pa’anga.
The bank is predicting that landed
costs of petroleum products will remain high in the first months of 1991 despite the slump in global oil prices (the rise in crude prices in August did not reflect in the landed cost of petroleum in Tonga until well into the December quarter).
Electricity and transport prices will rise in response to higher oil costs. Most of the landed cost increase from the December quarter had not worked its way through to the CPI in that period.
“This ... means that the rapid growth in the CPI to date has not yet reflected much of the increase in imported oil prices,” the bulletin said. “It also means that continued high inflation is in prospect through the first half of 1991.”
Increased government duties involve the change from a specific to an ad valorem tax for collecting customs duties on petroleum prices, which has meant taxes will continue to rise with any further increases in the landed cost. The higher port and service charges intro duced in the 1990-91 budget will also contribute to the costs of imports.
The bank said the heaviest inflation bursts (in 1987-88 and 1990-91) followed major upward adjustments in civil ser vice pay scales. □