Dear Editor,
In recent months, a heightened focus has been on Guyana’s inflation rate and its impact on households. Inflation is a broad measure of the cost of living in a country. Significant drivers of inflation in Guyana include the prices of fertilizers, food harvesting machinery, and shipping costs for imported goods. The Bank of Guyana, tasked with managing inflation, has implemented measures to control it and continues to pursue effective monetary policies. President Ali and his government have offered relief to households through fiscal grants and pledged further assistance using oil revenues.
According to the World Bank, Guyana’s inflation rate was 2.8 percent in 2023. Trading Economics reports a 3.6 percent in May 2024. In contrast, the International Monetary Fund (IMF) estimates the global inflation rate for 2024 to be approximately 5.9 percent. Neighbouring countries face significantly higher rates: Suriname at 20 percent, Venezuela at 100 percent, and Jamaica at 7 percent. In comparison, larger developed economies like the United States project an inflation rate of 2.9 percent. Thus, Guyana is faring well against these economies.
When evaluating Guyana’s inflation rate, it is crucial to compare it to the natural rate of inflation, which allows for full employment without price increases while supporting GDP growth. Most nations peg this natural rate at around 2 percent, fostering GDP growth and low interest rates. Guyana is close to this benchmark. Moreover, Guyana’s inflation policies are carefully aligned with GDP growth and interest rates. The IMF and World Bank project significant GDP growth for Guyana, with an anticipated 36 percent increase in 2024. Current interest rates, at a historic low of 5 percent, encourage borrowing for investment. This growth will necessitate a major increase in the workforce, and inflationary policies must consider their impact on future GDP growth.
Guyanese are experiencing a rise in living costs, particularly in grocery bills. However, it is essential to examine the sources of these increases. Effective inflation-combatting policies require the Bank of Guyana and the government to focus on the underlying drivers of rising costs. Economists attribute inflation to two primary causes: demand-pull inflation, driven by rising salaries and consumption due to improved employment prospects, and cost-push inflation, resulting from increasing production costs. For instance, disruptions in global agricultural supply chains can inflate prices for fertilizers and machinery, directly affecting Guyana. Until these supply chains stabilize post-COVID, the government must implement fiscal and monetary policies to cushion households from the impact. Guyana’s approach mirrors those of the United Kingdom and the United States, which have provided relief to their citizens.
The Bank of Guyana and the government are continuing their anti-inflationary strategies. The Bank is adjusting interest rates to prevent stifling business investments, requiring a long-term approach to inflation management. On the fiscal side, the government should maintain its price controls and subsidies for households while promoting investments in agriculture and local industries—key initiatives of President Ali. This policy addresses price pressures and supports job creation across local communities. Import substitution, specifically in the agricultural sector, has gained traction as the government seeks to bolster domestic production and reduce import dependency. Efforts to enhance local food production include support for farmers, infrastructure investments, and agro-processing initiatives, which will positively impact entire Caribbean communities.
Inflation is a long-term challenge, and in Guyana, both the Bank and the government are dedicated to finding solutions. Immediate fiscal policy responses have already made a difference. The government is also addressing energy costs, a major inflation segment, through the gas-to-shore project, which will benefit all Guyanese. As economic conditions change, the government’s approach to managing inflation will likely evolve, especially in light of the country’s new oil wealth and the challenges of rapid growth. This dedication to finding long-term solutions should instill optimism about Guyana’s economic future.
Sincerely,
Dr. Tilokie Arnold Depoo
Economist