VAT pumps up inflation
Index rose 6.9% by end of Feb but stabilising
Stabroek News
March 31, 2007
The Urban (Georgetown) Consumer Price Index (CPI) for January and February shows increases over the corresponding period last year of 9.3% and 8.5% respectively, fuelled by the implementation of the Value Added Tax (VAT).
For January there was a 6.6% increase in the price of the basket of goods. And in February there was a further 0.3% increase leading to a 6.9% increase.
"The summary effect is that for the period December 2006 to February 2007, the index has increased by 6.9%, with 6.6% for the period December 2006 to January 2007 and a further 0.3% for the period January 2007 to February 2007," according to a press release from the Bureau of Statistics. Data for January and February had been eagerly awaited in light of the implementation of the 16% VAT from January 1st this year.
"As a result the overall level of prices in January 2007 was 9.3% higher than the corresponding period in January 2006, likewise the overall price level in February 2007 was approximately 8.5% higher than (the) February 2006 level."
January month-end the Bureau of Statistics released the December CPI which showed inflation at 4.2% or a 0.4% increase and on Tuesday it released the CPI for January and February.
The Bureau noted that the continued monitoring of the CPI, particularly the CPI for March "will give a clearer indication as to the direction of prices after the market place settles in what obviously continues to be a definite period of adjustment during the first quarter of 2007."
According to the Bureau, "it was observed that during the month of January there was in general an upward movement of prices in almost all categories of goods and services, including those which were zero-rated from the outset."
Food, the highest weighted category in the basket, recorded an overall price increase of 7.9% over the December levels and it was observed that price increases were much more pronounced in the supermarkets and retail outlets than at the municipal markets.
In addition, the highest price increases were recorded in the sub-categories of alcoholic beverages of 39.8%; prepared meals by 17.5%; tobacco and tobacco products by 14.1% and vegetables and vegetable products by 12.6%. Meat, fish and eggs increased by 9.4%, non-alcoholic beverages by 6.3%, sugar, honey and related products by 5.9%, oils and fats by 5.5%, pulses and pulse products by 4.3%, condiments and spices by 3.1%, cereals and cereal products by 3.1% and milk and milk products by 2.5%. The only exception to this overall price increase in all categories of the food basket was the sub-category fruit and fruit products, where price levels declined by 5.3% from December levels.
Further, the Bureau observed, there was an appreciable increase in price levels during January in several other major sub-categories. The sub-category of clothing, where the index had remained constant since 2004, recorded a price increase of 12.8%, whereas educational, recreational and cultural services increased by 12.3%, miscellaneous goods and services by 11.4%, medical and personal care by 10.6%, furniture by 8.4%, transport and communication by 5.9%, footwear and repairs by 5.7% and housing by 2.5%.
Extensive checks in the supermarkets and the retail outlets were made in January, the release stated, to verify that the prices recorded were VAT inclusive, since it was observed that the prices on the shelves and at the check-out counters differed. A definitive picture emerged of the full or partial VAT rate being applied by vendors to the December 2006 price levels, without any adjustments being made to reflect lower taxes in some categories. "So during this first month of implementation and price adjustments, which was anticipated to be problematic, there was no price relief passed on by the vendors to the customers," said the release.
There was expectation that in February, the Bureau said, there would have been significant improvement through price declines and relief to the consuming public, given that the supplementary list of zero-rated items, which became effective from January 29, included significant items within the food basket, particularly meat, chicken, fish, eggs, cooking oil, margarine, cooking salt and dried black-eye peas.
Instead the February index showed a further 0.3% increase in price levels over January. This, it was noted, may be the "first signs of possible stabilization of prices." This observation, the Bureau said, is supported by the fact that in five of the nine categories comprising the basket of goods and services, prices held constant at their January levels or recorded a marginal decline. There were price declines in approximately 50% of items comprising the food group, and were it not for the steep rise in the index for fruit and fruit products of 23.6%, the overall food category would have recorded a price decline rather than remain constant. The other categories that remained constant in February included clothing, footwear and repairs and medical and personal care, whereas the transport and communication category declined marginally by 0.1%.
Of the four remaining categories of the basket that recorded an increase in their respective indices during February, the biggest hike was recorded in miscellaneous goods and services which had an increase in its index of 6.4%, primarily fuelled by the sub-category of 'goods for personal care' which increased by 9.8% over January levels even though several of its items were zero-rated in the supplementary list which became effective from January 29. The furniture category also recorded a 0.7% increase in February, primarily due to a 1.6% increase in the index of cleaning materials.
After the implementation of VAT in January there was widespread concern that vendors and merchants had simply hiked prices by 16% without making adjustments for taxes which were no longer applicable. Merchants had however argued that they had paid taxes on these goods and needed to recover their expense.