Depreciation adding to cost of high prices in goods, services

By NATHAN WOTI
THE depreciation in the Kina is adding to the cost of living pressure through the high prices of imported food especially rice and mixed foodstuff, says an economist.
ANZ senior economist Kishti Sen told The National that the country had not seen a decline in the import of these commodities as a result of the Kina deprecation.
“What we have seen is people switching from discretionary consumables such as soft drinks to maintain volume purchases of food staples,” he said.
“So the deprecation is hurting overall consumer demand.
“And when consumer spending is soft, retailers are likely to absorb part of the rise in costs.
“This puts them in a slightly worse tax paying position.”
Sen said it was “another negative of the fall in currency”.
“The Kina deprecation has not delivered enough foreign currency inflows to alleviate the problem of foreign currency rationing in the country,” Sen said.
He said the Government needed to look at alternative solutions to solving its foreign currency shortage.
“I believe the depreciation of the Kina is not one of them.
“The depreciation, albeit controlled, has brought more negatives than positives for PNG,” Sen added.
Meanwhile, the Bank of PNG monetary policy shows that the overall balance of payments was in surplus last year.
It is projected later to be in deficit in 2024, reflecting higher net outflows in the financial account.
The surpluses in the current account driven by the mineral sector are not translating into sufficient inflows to the domestic FX market, resulting in demand exceeding the supply of foreign exchange.
In 2024, according to BPNG, inflation is expected to pick up and by more than was expected in the September 2023 MPS, reflecting the removal of fuel subsidy in June 2023, and the depreciation of the kina exchange rate.
In the medium-term, headline inflation is expected to remain elevated in 2025 but subside in 2026.