Dear Editor,
President Irfaan Ali’s commitment to include a “sizeable allocation” to deal with the global increase of prices for households and businesses is prudent economic policy. This will be a welcome relief to households and businesses as they see the prices in their market basket increasing as a result of supply shocks and production slowdown due to the pandemic. As was witnessed globally, and in Guyana, there are sharp increases in prices due to two economic events. Firstly, consumers began to spend more in 2020, which caused prices to increase rapidly due to the increased amount of money in circulation. Secondly, the pandemic caused major disruption to the supply chain, the flow of goods to consumers from across nations. During the lockdown, many producers slowed production of goods. However, as we return to some normalcy, they are having difficulties with labour shortages and access to raw materials. These are the main contributing factors of our current inflationary state. Inflation is one those economic phenomenon that will be immediately felt by households, and without quick drastic actions by the Government, households could see the price of their meals become more and more expensive and their paychecks buying less. Although Guyana has seen a drop in its inflation rate to 1.3 percent, in the last year there are price increases in household items. Globally, we see that the typical breakfast is more expensive than it has been for the last 40 years. In the US, inflation is at a 39-year high of 7 percent. Inflation typically also impact low and middle-income families because the prices of groceries, utilities, gas, and clothing would rise dramatically. Guyanese are susceptible to price increases in staple commodities such as cooking oil, flour, dhal, bread, gas, etc. It makes practical financial sense to introduce a policy response through budget allocations as the Government is doing.
In his budget message, President Ali stated that budget allocation will be used to “…reducing burdens, enhancing welfare, giving back more to the population, enhancing livelihood, improving living conditions, and improving the quality of life of the Guyanese people”.
This response will fundamentally reduce the impact of increasing prices on Guyanese, especially low to middle-class. Government is right on track, making this a priority to tackle immediately and lessen the burden. President Ali’s policy response to the rising costs of living is effective economic policy, and using all the tools at his disposable, to ensure that Guyanese are cushioned from this price increase, timely policy move. Typically, central bankers would implement disinflationary policies with the intent to reduce inflation through contractionary policies that reduce aggregate demand, which takes time. However, in this case, when prices are increasing across the globe and for every nation, domestic governments can moderate these increases through fiscal policy actions, and specifically, this is what the Government of Guyana is doing through its proposed budget, acting swiftly. This anticipatory action will reduce the impact of rising prices to Guyanese, and will allow Guyanese families to get help to cushion this global economic price shock. This signals that Government is focused on Guyanese households and businesses. Good proactive economic move from the Government, using the budget process to better lives!
Sincerely,
Dr. Tilokie Arnold Depoo
