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INFLATION AND ITS REALITY

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Submitted by John A
Minister of Finance
The Honourable Prime Minister Mia Mottley

We have heard the word inflation being bandied about a lot recently, but what does it really mean to the average Barbadian in real terms?

I sent BU a menu which was posted on the the 4.4% growth NTSH blog – see menu. This showed what a popular beach restaurant in St Michael was charging for their offerings in 1975. At this time there is no clearer example of inflation I can think of than what this menu brings to light. The question then when we look at this menu and compare it to today’s prices, has to be, are we better off today than in 1975? As numbers don’t lie let us now turn to them and compare 1975 to now. In other words has our personal GDP kept pace with inflation over the period or are we poorer in real terms?

  • Coke large 25 cents 1975 cost $2.75 in 2023, 11 times more
  • Salad large $1.50 in 1975 cost $15.00 in 2023, 10 times more
  • Steak & chips $4.75 in 1975 cost 38.00 in 2023, 8 times more
  • Ice cream lg 40 cents in 1975 cost $9.00 in 2023, 20 times more
  • Cheese burger 75 cents in 1975 cost $9.00 in 2023, 12 times more

So the average factor of increase over 48 years on the above is 12.2 times higher prices.

One must now ask what has salaries increased by over the last 48 years? Well we know for 10 years under Sinkyuh we had a wage freeze, let’s subtract them and ask over 38 years instead.

If you were paid $1000.00 in 1975 and you got an increase of 4% over the 38 year period (48- lost decade), you would be earning $4560 dollars today. Now I don’t know how many got a 4% raise every year for 38 years but let’s be kind. This then gives us a wage increase factor for the period of 4.56 times.

In summary eating out increased by a factor of 12.2, but salaries only grew by a 4.56 factor over the same period. Now if we even take the 10 Sinkyuh years and assume a 4% increase in pay every year for them as well, the factor for earnings would still only be 6.79 times.

Now the OECD has forecasted globally an increase in GDP of 2.7% with a rate of inflation of 2.6%. This would mean you will not be poorer in real terms, at least not for 2024 if their predictions are correct. I have also included for you a survey of GDP done by Global Finance for the period 2018 to 2022, which is worth a read as Barbados is included and it covers the pre-Covid and post-Covid economy.

Finally take a read of the article by the ILO titled “Rising inflation brings fall in real wages.” Next time you wonder why you working for more but still always “ brek”, just remember the 40 cent ice cream from 1975!

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73 responses to “INFLATION AND ITS REALITY”

  1. John A Avatar
    John A

    @ Artax

    The things is how do we get governments to stop depending so heavily on toursim? If covid did not teach them the folly of this what will it take to make them see that we must get other sectors to contribute more to our GDP?

    To be honest this worries me more that anything else going forward.

  2. David Avatar
    David

    @John A

    To transform the economic sectors in Barbados will call for heavy lifting by public and private sector alike. What must drive it is robust advocacy from civil society at large. Our lazy politicians looking for a quick pension will not do it. Unfortunately the quality of individuals offering themselves for public duty low quality.

  3. John A Avatar
    John A

    @David

    They have to do it or the people will continue to get poorer in real terms.

    The numbers show clearly for even the biggest party loyal, that in 48 years we experienced a factor of inflation of 12 rougly but in the meantime we only saw a wage increase of a factor of 5 roughly. So lets say we do nothing, where will we as a people be in the next 25 years? What will the 30 year olds of today find themselves in?

    People dont realise the damage Sinkyuh did to the economy and people of this island. That 10 years of no wages while inflation rose, has left us in a position where I dont see us catching up in terms of our earning to cost of living ratio.

    Government has to act now to get the other sectors of the economy to contribute more to the GDP or the next 50 will the same as the last 50. The days of a one leg economy therefore needs to be a thing of the past.

  4. David Avatar
    David

    @John A

    Some do not agree but nothing will change unless WE demand it. Unfortunately we allow conscious and unconscious biases to compromise our priorities.

  5. William Skinner Avatar
    William Skinner

    Apparently we are admitting that there really is no substantial or sustainable improvement in running the economic affairs of the country.
    Quite frankly COVID provided a perfect excuse for many people to hide behind.

  6. John A Avatar
    John A

    William you are so right. Instead of learning from it and changing our 50 year old economic plan, we used it as a scapegoat for why things so bad.

    If you look at the chart you will see Barbados is 1 of 3 or so countries who had an average net GDP between 2018 and 2022 inclusive. So that included the 2 best years of tourism before covid as well as the post covid year.

  7. John A Avatar
    John A

    Sorry i meant an average negative net GDP

  8. Hants Avatar
    Hants

    boss lady

    https://barbadostoday.bb/2023/11/04/pm-at-white-house/

  9. David Avatar
    David

    Rum producer laments delays in GI registration

    Article by Marlon Madden
    Published on
    November 4, 2023

    https://barbadostoday.bb/wp-content/uploads/2023/11/RICHARD-SEALE-760×475.jpg

    The delay in the registration of a potentially lucrative graphical indication (GI) for Barbados rum is not sitting well with this island’s rum producers, who have been trying to get it in place for the past several years.

    On Friday, master rum distiller and owner of Foursquare Rum Distillery Richard Seale argued that the delay was a result of authorities not understanding the importance of having the GI in place.

    He said while he was not pointing any fingers, it was simply unsatisfactory and unacceptable that the industry was still awaiting approval of the trademark for several years from the Corporate Affairs and Intellectual Property Office (CAIPO).

    “Government has never really understood it because we have lived off making sugar . . . Therefore, I don’t think they really take seriously, IP (intellectual property),” said Seale.

    The first application to CAIPO for a GI was made by Export Barbados (BIDC) but was said to have required amendments and was subsequently abandoned following objections from a prominent distiller.

    However, another application was submitted by three of the island’s rum producers in 2020. That, too, required some changes but they were not made aware of that until last year.

    “So we responded accordingly [and] we have not heard anything since . . . . To date, three years, the application has languished in CAIPO,” Seale told those attending the rum panel discussion of the annual Barbados Rum Experience at the Radisson Aquatica Hotel.

    “The seriousness of the issue is that it is not understood because Barbados simply does not have any experience and true understanding of selling to the world valuable, artisanal products. So they don’t grasp the concept that the more we invest in Barbados rum and the more valuable it becomes the greater the need to protect it.”

    He said there continued to be concerns among local rum producers that there is no guarantee any rum overseas labelled ‘Barbados rum’ was actually from the island, and that the country continued to lose out on precious foreign exchange earnings as a result of the rum not being protected.

    A GI is a sign that specifies that a project originated from a particular location, with the qualities, characteristics or reputation of the product depending on the place of origin of the product.

    “The greater the value it has, the greater the exposure to exploitation . . . . As long as you create something of value, it will be exploited if you don’t protect it,” Seale told the gathering of international rum connoisseurs and specially invited guests.

    Questions were raised by a former CAIPO employee about whether the delay at the government department was a result of a backlog as well as the need for more staff.

    Seale said while there was no question those could have contributed to delays, “at the end of the day, if government is serious about protecting intellectual property, they will give the office the resources they need”.

    Barbados TODAY understands that among the stipulations in the initial proposed GI are that rum distillers must use Barbadian water to make their rum and that the rum must be aged here.

    Seale explained that the application submitted by three of the island’s rum producers was that Barbados rum be produced on the island “straight through to bottle”.

    “In other words, there is no prescription on the methods to be used because one of the wonderful things about Barbados is that we have great diversity between our producers,” said Seale.

    Foursquare had also submitted an application for a GI for Falernum in 2020, but Seale said they are yet to receive a response from CAIPO. (MM)

  10. David Avatar
    David

    Impact of rising prices in Barbados

    By Tony Best

    With its economy on the mend, growth in its forecast and reforms “well underway”, Barbados’ tourism industry, which fuels most of the island’s economic expansion, doesn’t seem to be suffering significantly from rising prices.

    That assessment came from two of Wall Street’s leading financial and credit rating analysts, Richard Francis, director of the Fitch Rating Group, and Christopher Dychala, associate director for Sovereign Rating, also of Fitch. Both believe that although consumer prices, especially in the tourism sector, had risen in the post COVID-19 pandemic era the destination’s lucrative industry didn’t appear to have suffered unduly from rising costs.

    “We definitely saw an increase in costs during our (recent) visit this time and that is something we heard from the (country’s) business sector as well, that Barbados is a relatively expensive place and a high-cost place for doing business,” said Dychala who was quick to add that rising prices probably contributed to the fact Barbados’ economic recovery after COVID-19 didn’t match the pace of growth of some of its neighbours.

    “That may explain why it hasn’t gone back to pre-COVID levels but we understand there is a pretty solid base of visitors who prefer Barbados and to vacation (there),” said Dychala. “Certainly, the tourism rates from the UK we have already seen have recovered and even surpass pre-COVID levels.

    “Maybe there is additional demand for flights to Barbados,” he added when asked about the impact of rising prices on visitors and on Barbadians alike.

    Francis told the Sunday Sun that tourism, the main driver of the economy, had “definitely changed with big-name hotel chains coming on stream.”

    Neither Francis nor Dychala raised an alarm bell about any immediate prospect of the Israeli-Hamas war sending oil prices sky-high and contributing to a jump in inflation in Barbados.

    “It is an issue globally, especially small island countries, a geopolitical risk that could affect oil prices. It is more pressing for Barbados to continue its 2030 plan, (emphasising) renewable energy. It highlights the risks and vulnerability of being dependent on oil imports,” Francis said. “Barbados has a plan to shift away from oil imports and use more renewable energy and that could be advantageous.”

    Francis suggested that oil prices could change if the conflict in the Middle East expanded to include other countries, especially oil-producing nations.

    Fitch, one of Wall Street’s big three credit rating firms, recently upgraded the outlook on Barbados’ B credit rating, moving it from stable to positive.

    Source: Nation

  11. David Avatar
    David

    Businesses to pay more taxes

    IN A MINISTERIAL STATEMENT, Prime Minister Mia Amor Mottley said yesterday that from Income Year 2024 with effect from January 1, the Income Tax Act, Cap. 73 will be amended to include the following provisions:

    •

    There shall be a corporation tax rate of nine per cent, subject to the following regimes:

    •

    Registered small businesses with gross income below $2 million will pay 5.5 per cent corporation tax.

    •

    Corporation tax rates for insurance companies will remain zero per cent for class 1, and two per cent for classes 2 and 3.

    •

    International shipping business will remain taxed under the current tax regime established in 2019.

    •

    Multinational enterprises whose parents or related entities have not implemented or are subject to an Income Inclusion Rule and Undertaxed Profits Rule will pay 5.5 per cent to one per cent corporation tax and no Qualifying Domestic Minimum Top-Up Tax.

    • A Top-Up tax will be levied against multinational enterprises subject to the Global Anti-Base Erosion Model Rules to ensure that they are subject to an effective tax rate of 15 per cent.

    •

    The new corporation tax rates will only be applicable for that portion of profits in income year 2024 earned from January 1, 2024. (SC)

  12. David Avatar
    David

    Not all must pay

    Some small businesses excluded from new tax

    SOME LOCAL AND foreign-owned companies operating in Barbados will have to pay increased corporation tax from January.

    Government is raising the overall corporate tax rate from the current range of 5.5 per cent to one per cent depending on profits, up to nine per cent.

    It means that the current administration will be revamping the country’s corporate tax regime for the second time since coming to office and once more it will be in fulfillment of international requirements, this time the shift to a minimum global tax from 2024.

    Prime Minister Mia Amor Mottley announced the changes in a ministerial statement in the House of Assembly yesterday morning, noting “the future of this country is at stake” if the changes were not made.

    Some companies, including small businesses, will not be required to pay the higher tax and Government is introducing a number of tax credits “to encourage economic growth, development and employment in strategic sectors”, the Prime Minister said.

    Mottley also announced that from January 2024, multinational enterprises within the scope of the global minimum tax would be required to prepay corporate tax each month. Other registered firms here, except small businesses, will have to make similar payments from January 2025.

    The Minister of Finance, Economic Affairs and Investment told Parliament that while some businesses “probably” would leave Barbados because of the corporate tax increase, it was also possible there could be a “bounty” of surplus revenue from corporation taxes.

    Global effort

    Barbados is one of 139 countries which in 2021 signed on to a global effort to reform corporate tax, increasing it to a 15 per cent minimum tax rate. The initiative is led by the Organisation for Economic Cooperation and Development (OECD).

    This higher tax rate, she explained, related to multinational enterprises with revenue exceeding US$800 million in relation to the Global Anti-Base Erosion Model Rules (GloBE Rules). Jurisdictions are also allowed to impose an “additional tax of up to nine per cent on certain intergroup payments”.

    “The GloBE Rules are, therefore, designed to ensure that large multinational enterprises pay a minimum effective tax rate of 15 per cent on the income arising in each jurisdiction in which they operate, through the application of a system of top-up taxes in other jurisdictions (an Income Inclusion Rule and/or an UnderTaxed Payment Rule and/or a Qualified Domestic Minimum Top-up Tax),” Mottley explained.

    “Where, for example, profits earned by a group subsidiary located in Barbados are taxed at an effective rate of only five per cent, then the new rules will come into play from 2024.”

    She added: “Therefore, with the global minimum tax rate of 15 per cent, the jurisdiction where the parent company is based will have the right to charge an additional ten per cent in taxes on the subsidiary’s profits. This will ensure that even those profits located in Barbados are ultimately subject to an effective tax rate of 15 per cent.

    “Any top-up tax to be paid in the other jurisdiction might be reduced or eliminated by any qualifying domestic minimum tax which allows Barbados to collect the tax.”

    In line with Barbados’ commitment to these GloBE Rules, the Prime Minister, therefore, announced that from January 1 “there shall be a corporation tax rate of nine per cent subject to the following regimes”.

    Business as usual

    Exceptions to this include companies whose gross income is now below $2 million and which is a registered small business. These enterprises will have to pay a 5.5 per cent corporation tax rate.

    The corporation tax rate applicable to insurance businesses will be zero per cent for class 1 (including captive insurance firms), and a two per cent for both class 2 (all other insurance companies that insure and reinsure third-party risks) and class 3 (including insurance brokers and managers) insurance companies.

    Mottley also said it would be business as usual corporation taxwise for international shipping businesses for the time being, but added that “after consultation with the sector, the Ministry of Finance would advise on whether Barbados should adopt a new regime for international shipping companies for the fiscal year 2025 and onward”.

    The Prime Minister also said effective January 1, for those multinational enterprises to whom the Income Inclusion Rule and Undertaxed Profits Rule did not apply to their ultimate parents or “constituent entities” their corporate tax rate would remain at 5.5 per cent to one per cent. For these entities there will be no application of the Qualifying Domestic Minimum Top-Up Tax.

    The new top-up tax will be imposed on other multinational enterprises “to ensure that they are subject to an effective tax rate of 15 per cent, as per the GloBE rules, the Minister of Finance said.

    Mottley said there would be new tax credits added to existing tax allowances and that these “shall be offset against any other tax liability for a period of four years”. Those announced were the Qualified Jobs Credit, and Research and Development Credit. A National Development Credit is also under consideration.

    Mottley said she and other officials met in Canada with major longstanding business partners there as Government seeks to maintain and grow Barbados’ global business from that country.

    Pointing out that 72 per cent of Government’s corporation taxes are paid by companies for whom most of their profits, if not all, are made outside of Barbados, the Prime Minister told the House she would also meet this week with officials from the OECD and members of the French private sector.

    “I expect over the course of the next two to three months that we will also have to consolidate our existing business with respect to entities in the United Kingdom, Europe, United States of America and CARICOM and as far as possible minimise therefore the [corporate tax increase] downside risks,” she said.

    “Do we expect some businesses to leave? Probably. But we do believe that all will not leave and we do believe that our continuous engagement with them can make the case for their remaining in Barbados,” Mottley added. (SC)

    Source: Nation

  13. David Avatar
    David

    https://www.instagram.com/reel/CzWeCJrt184/

  14. William Skinner Avatar
    William Skinner

    It will be very interesting to see how we are going to reach one billion dollars in earnings from rum.
    Might be a bit easier than making chicken more affordable .

  15. Artaxerxes Avatar
    Artaxerxes

    @ John A

    RE: “The truth is the education system does not prepare school leavers for the real world. Much of what it teaches is of little use to them in reality.”

    Yet, several Barbadians and persons from other ethnic minority groups were able to capitalise, benefit and became successful as a result of the same system.

    Why????

    RE: “While it may prepare them for a job it does little to prepare them for life in a financial world where budgeting and prioritized spending is key.”

    Some BU contributors are fond of reminiscing about ‘the good old days.’
    My great-grandmother was a maid and great-grandfather, a plumber/driver at the then Water Works.
    They, similarly to several other Barbadians in those days, DID NOT have any formal education, but were able to ‘budget and prioritised spending,’ to build their home.

    Additionally, perhaps we’ve chosen to conveniently ignore the fact that, after Trade Confirmers Limited, Bank of Credit & Commerce, Narsham Insurance, CLICO, government bonds etc, the island’s financial sector remains poorly regulated, which may not inspire the confidence of young Barbadians therein.

  16. NorthernObserver Avatar
    NorthernObserver

    @Artax
    I doubt many appreciate what regulation means exactly.
    And if the ongoing BL&P application to a regulator is any example, may (not unreasonably) assume regulators don’t function as intended. Hence, why are they required and what is their value?

  17. Artax Avatar
    Artax

    NorthernObserver, the regulators are required by law. Unfortunately, the functions of FTC regulators are limited by the FTC Act.

  18. David Avatar
    David

    Five Things You Need to Know to Start Your Day

    https://www.bloomberg.com/news/newsletters/2023-11-09/five-things-you-need-to-know-to-start-your-day

  19. Hants Avatar
    Hants

    Food will be imported to support “Tourism”

    https://barbadostoday.bb/2023/11/09/vendors-say-cost-of-produce-doubling-in-some-cases-making-it-difficult-to-earn-a-living/

  20. David Avatar
    David

    It boggles the mind why we have not integrated local production of food and other goods with the tourism sector to a greater degree. It boggles the mind.

  21. John A Avatar
    John A

    @ David

    So imagine what the inflation factor will be over the next 25 years! We know the last 48 was an average factor of 12, so anyone want to guess at the next 25 based on what is unfolding?

    All the vendors are doing is confirming what we all now know and have discussed above and that is we continue to get poorer in real terms.

  22. TheoGazerts Avatar
    TheoGazerts

    Some things are substantiative and only a madman would question their existence and some things only exist in the minds of madmen or party faithful.

    I was listening to a caller on Hants favorite (Brassb̶o̶w̶l̶s̶/tacks)show and he gave a list of his party many accomplishment. Like his colleague on BU he put a few items in the win column that (1) should not be there, (2) may easily be reversed with the passage of time and (3) their value can be questioned.
    Here is the lis
    Debt to GDD Ratio down
    Credit ratings gone up
    10 consecutive quarters of growth
    Sugar being packaged and exported
    Exports in 2022 being more than 20% in the previous year
    Restoration of free education
    Sewage problem fixed
    Improvement in water supply
    Increase of salaries
    Extension of our independence
    Electric (some shit)

    I don’t care who you are answer me this. Does Motley’s miserable motley mistake making misfits deserve another five years based on the above record.

  23. David Avatar
    David

    $903M LOAN PLAN

    Multilateral institutions to finance bulk of Govt’s needs

    By Shawn Cumberbatch shawncumberbatch@nationnews.com

    Government is planning to borrow $903 million this financial year to cover a large portion of its funding requirements.

    The majority of the money – $703 million – will come from the International Monetary Fund (IMF) and other multilateral institutions.

    In a new Medium Term Debt Management Strategy prepared by the Debt Management Unit of the Ministry of Finance, Economic Affairs and Investment, the authorities say the continued dominance of external borrowing will be “initially more costly”.

    This is because of “the increased cost of multilateral borrowing, stemming from the variable [interest] rate benchmark”.

    However, Government said its continued use of a strategy heavily weighed towards foreign borrowing “capitalises on readily available funding sources over the medium-term, while gradually rebuilding the domestic market in the face of strong signs of increasing market confidence”.

    This is detailed in the Strategy for this current fiscal year 2023-2024 to 2025-2026, in which Minister in the Ministry of Finance, Economic Affairs and Investment, Ryan Straughn, said “the borrowing plan for 2023-2024 capitalises on the strong relationships built with official sector development partners, as well as domestic stakeholders.”

    The minister said the debt plan “evaluates the costs associated with various forms of available financing within a framework that is consistent with an acceptable level of risk.”

    “It is reflective of our commitment to reduce the debt-to-GDP ratio to 60 per cent by 2035/2036 and the associated policy reform efforts articulated in the Barbados Economic Recovery and Transformation Plan 2022,” he said.

    “The publication of this [Strategy] seeks inter alia to continue to enhance debt transparency and accountability, while providing greater context around Government’s borrowing decisions.”

    The document said that at March 31, 2023, public debt was approximately $14.27 billion, about 119.6 per cent of GDP. The Central Bank of Barbados’ most recent quarterly report has debt at $14.44 billion at the end of September – 115.4 per cent of GDP.

    The new Strategy said Government’s gross financing requirement for 2023-2024 “is projected at approximately $903 million, approximately 7.1 per cent of GDP”.

    “This sum is exclusive of $495 million in treasury bills, which will be rolled over, as per the agreed terms in the 2018 Domestic Debt Exchange and $220.6 million, which will be covered by Government’s overdraft at the Central Bank of Barbados,” the Government Borrowing Plan 2023-2024 section of the document outlined.

    It said that the $903 million would be financed mainly via $703 million in external loans. This will be comprised of $276 million in investment loans, $200 million in policy based loans, $151 million from the IMF Resilience and Sustainability Facility and $76 million from the IMF External Fund Facility.

    Government also expects to secure $176 million from the sale of domestic bonds, and $24 million from the sale of treasury bills, by the time the financial year ends next March 31.

    The document explained that while four debt strategies were considered, the one chosen “which utilises majority external official sector funding to meet gross financing needs, was considered as the preferred option”.

    “Though initially more costly, it capitalises on already identified sources of financing, in addition to fulfilling Government’s objective of reigniting the domestic securities market. The success of this strategy will be heavily dependent on the completion of the necessary reforms to satisfy the structural benchmarks and other conditions precedent to access the funding,” the report stated.

    Under the chosen strategy, the status quo will remain, meaning that “over the medium term approximately 77.8 per cent of gross financing needs will be met from external official sources, mainly multilateral [and] the remaining 22.2 per cent of gross financing needs will be met from domestic security issuances”.

    “The increased cost of multilateral borrowing, stemming from the variable rate benchmark, will need to be continuously managed with a view to mitigation through available liability management operations and switching to fixed rates based on a cost benefit analysis,” the Strategy added.

    Source: Nation

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