Monday, January 24, 2011

2011 - an year of higher inflation?

We have been seeing recovery in the tourism sector with tourist arrivals reaching 750,000 towards the end of 2010. Nominal GDP is expected to grow by 12.4 percent by the end of 2011, and real GDP is also expected to have a positive growth of 4 percent.

On the consumer front, government employees got good news with the new year, that their salaries will be revived from January. It is expected that there will be further boost in domestic demand with this increase in the salaries of more than 20,000 workers. As we import almost all of our consumption goods, imports are also expected to grow. The value of exports reached $1,221 million in 2008 when we had and inflation rate exceeding 12%. After that in 2009, value of imports was $851 million, and in 2010 from January-November it was at $990 million, and this year it is expected to reach $1,148 million. Meanwhile, inflation was at 4% in 2009, and 5.6% as at end October 2010, and could be above 6% by the end of 2011.

In such case, there will be further inflation expectations, and traders may tend to adjust their prices upwards, and workers may demand higher salaries to compensate the increase in prices. The situation may get very unpredictable close to 2013, when there is the presidential elections, and huge campaigns. We need to understand that if all our incomes increase, with no increase in production, all we get is high inflation. And high inflation is not good for economic growth.


  1. I wonder whether the relevant authorities have done a sensitivity analysis, or a forecast based on such assumptions, and ways to address the consequences of such external shocks.

  2. GDP or GPI, which is better?