Inflation hurting people

Editorial

INFLATION has become a serious problem, not just in Papua New Guinea, in recent months and weeks.
It has been triggered by the global economic recovery as countries come out of the mire of Coronavirus (Covid-19) and its restrictions, triggering shortages of a range of products, as a result of supply chain restrictions.
This is imported inflation, which was expected to resolve itself over a few months as those shipping and other market chain disruptions sorted themselves out.
The situation, however, has made itself substantially more serious over the past month, since Russia invaded Ukraine, and the associated impositions of international sanctions on goods and services emanating from Russia.
With both Russia and Ukraine, being major global producers and exporters of a range of critical extractive resources and stable foods (notably wheat), it added major constraint and uncertainty in these markets, and strong further upward pressure on prices, with oil prices having been pushed above US$100/barrel again over the past weeks for the first time since mid-2014.
Duration of this price hike clearly depends in large part upon the duration of this conflict.
Tackling inflation is a primary function of Central Banks in all countries, with the usual first measure entailing the imposition of increased interest rates.
Usually, however, Central Banks avoid taking measures against oil price hikes as they’re normally short term, with the Banks normally focused on tackling longer term inflationary pressures, rather than seasonal or cyclical shifts.
The beauty with the goods and services tax (GST) system as applied since it started in the 1990s, is its relative simplicity at a standard 10 per cent across the board.
Some countries do have different rates for luxury or essential goods, children’s clothes and other items, which does have some merit, but it makes the system more administrative complex.
It’s really not practical chopping and changing, say for a six-month period (and we don’t know how long the high prices will prevail, but they’ll likely continue beyond 6 months).
Reducing excise duty on fuel would have been an option, and easier to administer, and it works through the value chain, including making locally produced staples, fruit and vegetables, more affordable and accessible, especially with diesel, which is used for most freight and public transport.
In banking there are several financial institutions in the market place, but it’s true that there’s a very dominant, which is also making very positive returns.
There are no restrictions on entry, and indeed over the decades the Central Bank has sought to encourage new entrants, but when they’ve commenced they’ve consistently failed to pick up the business envisaged and had second thoughts, and sold out.
The Government certainly needs increased revenue, and less dependence on growing debt, but they’d be better off safeguarding their revenue on the basis of the higher commodity prices for oil, gas, gold, copper and nickel/cobalt, with the latter still enjoying its rather ludicrous decade+ tax holiday.
Other measures also need to be taken to increase competition and reduce costs and overheads in transport, including ports, including improving provision of freight services to other coastal destinations, not currently served.
Freight subsidies can have merit, but only if applied on an equitable basis, i.e. via all operators, or through a transparent tender process, with a modest subsidy that can be sustained over time, rather than applied intermittently, and then dropped when the allocation is exhausted, disrupting the market and sending unhelpful market signals to producers.
PNG also does need to start developing its database and mechanisms to be able to provide targeted relief to households most at risk within the community, including funding for nutritious school meals across the country, or financial transfers to mothers with young children, as well as a basic pension or disability support.