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INFLATION AND ITS REALITY

Inflation

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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. David Avatar
    David

    @John A

    Your argument is understood but there is a reality.

    The consumption behaviour people have become addicted means that demand for goods and services combined with how input costs are manipulated by market conditions/speculators mean inflation will always be with us. This is more apt for a small open economy like Barbados.

    True?

  2. Samuel S. Shank Avatar
    Samuel S. Shank

    At the rate that Missing In Action is borrowing money that has to be paid back by our great great grand children it WILL get much worse.
    The borrowing needs to stop.

  3. David Avatar
    David

    We can’t discuss ‘borrowing needs to stop’ in a vacuum. It is more complicated than that.

  4. John A Avatar
    John A

    @ David

    If you look at the GDP chart you will notice Barbados is one of I think 3 countries, that at the end of the 5 years had a GDP that was still negative by 0.6 percent. Lets be honest we will never be China but we have to diversify our economy to get more out of the none tourism economy. We cant continue to bet the house on a one leg economy.

    When you look at the numbers you will also see why we have to borrow so heavily. We keep borrowing to cover the deficit. Mind you not only Barbados is in this position so we are not alone. If you notice the average multiplier of 12 also would hold true for a car. In the early 70s a Datsun 1600 was around $5500 wheras today a similar car would be over $60,000. Land same story.

    I also read a review on the USA economy that stated that this generation will be poorer in real terms than their parents. The thing is though that is partially because like here, they spend on the wrong things too. We just have to be more productive with the economy.

  5. John A Avatar
    John A

    The other thing we need to do is to stop spending so heavily in non productive items. While this spending does go towards the GDP it does little to help our personal growth.

    This comment may upset some but its true.

  6. David Avatar
    David

    @John A

    We agree, the underlying issue will always be leaders pandering to conspicuous consumption habits of our people. Mind you, the blogmaster will never negate the goal to grow the economy, however the growth must be sustainable based on our limited resources/capacity.

  7. David Avatar
    David

    @John A

    The reality is that we live in a time where populism is the approach of choice, ordinary people generally tend to focus on what is sold to them. A contentious point some may suggest.

  8. John A Avatar
    John A

    @ David

    If you ask young couples today why they spend on cars and travel, many will tell you that they live for today because they have accepted they will never be able to buy a house. While house prices have not escaped the inflation net and it is true a decent house in the early 70s was around $75,000, could they not have driven 2 old cars and not travelled less, but paid a mortgage instead?

    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. 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.

  9. David Avatar
    David

    @John A

    That maybe correct to a point. We live at a time where materialism has reached a zenith. This is a consideration as well. Our leadership at every level of civil society needs to fashion a vision that reflects who we should aspire to be in order to nurture a wholesome society. Fluffy words but it is why we invested heavily in education, time to see the ROE.

  10. Observing Avatar
    Observing

    Our materialistic culture feeds the supply and demand beast. We will never be able to reduce imports and hence prices through local production based on how we operate.

    Also inflation only hits “certain” people. It really doesn’t bother others. As long as the status quo and mindsets remain we will be forever in this loop.

    That’s why meagre salary increases which are touted as wins for the labour movement should be seen as mere token gestures to keep the populace quiet.

    As for education, unfortunately it currently does what it was meant to do. Churn out workers and servants primarily.

    Just observing

  11. John A Avatar
    John A

    @ David

    You realise this new approach with the feeding of materialism only started 2 or so decades ago. Our parents were laser focused on their approach. There was little obsessive spending and the little they made was targeted towards their goals. Many middle class were not only able to buy a home, but also bought a piece of land and ” put down” for each child.

    Then again they drove probably a Ford Escort or Austin Cambridge and not a Jaguar so that helped.

  12. David Avatar
    David

    @John A and Observing

    We have created a beast in an environment that nurtured it. It is what it is, we must deal with it.

  13. William Skinner Avatar
    William Skinner

    We have been on this path for fifty years.
    I prefer the assessment of Prof. Justin Robinson, who recently stated the economy has showed no real growth for forty years.
    High inflation, high food prices, propaganda driven employment statistics, increased taxation, increased bus fares.
    What did we really expect?

  14. John A Avatar
    John A

    @ William

    It sadly is 6 of one or half dozen of the other as you have correctly said. Truth is a large part of our GDP is driven by consumption of non growth items.

  15. David Avatar
    David

    @John A

    The hardcode challenge is that key drivers of a capitalist system is stoking consumption, some may prefix with conspicuous.

  16. John A Avatar
    John A

    @ David

    The truth is unless we get the other sectors producing, relying on tourism only with make the next 48 years the same as the last 48.

    Remember Owen Arthur touched on this a few years back where he said we needed to raise GDP by other sectors other than tourism.

  17. Hants Avatar
    Hants

    Simultaneously, Mark St Hill, CEO of CIBC FCIB, views it as an opportunity for growth and consolidation in core markets like Barbados and The Bahamas.

    https://ca.investing.com/news/stock-market-news/cibc-firstcaribbean-set-to-rebrand-exits-dutch-caribbean-markets-93CH-3159854

  18. David Avatar
    David

    @John A

    Which sectors are positioned in the economy to generate revenue of any significance?

  19. John A Avatar
    John A

    @ David

    Rum I think has the best positioned sector for exports, as all the major brands seem to be expanded their business for more export. David Seale for example just increased his bond spaces and other Brands seem also to be spending on their infrastructure. Local agriculture could also increase GDP activity and provide employment. What worries me is every project I hear our government speak on as ” coming soon” is tourism based. I see no diversification of our economy on the cards, its as if we learnt nothing from Covid.

  20. Hants Avatar
    Hants

    I here listening to Down to Brasstacks on VOB929.

    Just heard a woman in tears complaining about suffering in pain for many years.

    She also mentioned the mental anguish from having a settlement in the control of the usual suspects.

  21. John A Avatar
    John A

    The problem we all have to accept be we B or D, is that we have a GDP that is based mainly on Tourism and consumption. So unlike others we dont have much export in their.

    If you look at the graph you will see that for the 5 year period of 2018 to 2022 we did not grown the average GDP at all. Instead in declined by -0.6 percent over the period.

  22. David Avatar
    David

    @John A

    We have discussed many times the challenges associated with expanding rum production. We don’t produce enough molasses for a start which compromises rum identity etc/

  23. NorthernObserver Avatar
    NorthernObserver

    The article “read oddly” and then at the bottom “This article was generated with the support of AI and reviewed by an editor.”
    CIBC unload the Dutch locations, and irrespective of the CEO’s comments only need a willing buyer to unload the others

  24. Sargeant Avatar
    Sargeant

    @NO
    Saw that earlier and that’s why I didn’t link it to my earlier comment on the Diaspora page.

  25. Sargeant Avatar
    Sargeant

    Off topic

    One shouldn’t rely on AI for accurate info, as evidenced by lawyers in the US who used ChatGPT for research purposes and ended up in citing faulty legal research, in essence Chat GPT made up case law.

    https://www.cbsnews.com/news/chatgpt-judge-fines-lawyers-who-used-ai/

  26. Hants Avatar
    Hants

    @ The most Honourable Blogmaster.

    I hope you are listening to Brasstacks.

  27. David Avatar
    David

    @Hants

    What is the subject matter?

  28. Hants Avatar
    Hants

    woman deprived of a settlement while she has been suffering with chronic debilitating pain.

    buh doan mine me. Just venting because I have over one hundred thousand reasons to complain but I will continue to suffer in relative silence.

  29. David Avatar
    David

    Thanks Hants, deprived of a settlement meaning delayed court case or with lawyers? Will try to listen to the podcast.

  30. Donna Avatar
    Donna

    Hants,

    Many more like that lady. It’s very common.

  31. NorthernObserver Avatar
    NorthernObserver

    @David
    you will be pleased to know, that buried in the appendices of the Fiscal Framework was
    “The effectiveness of the the Public Accounts Committee has been strengthened to allow the public to monitor in real time its oversight role, thereby ensuring full transparency.”
    Naturally this shiite is penned primarily for the anal operatives at the multilateral lending agencies and credit rating bureaus.
    Apparently, under the 2021 Procurement Act. the Chief Procurement Officer has the responsibility of reporting annual on all contracts awarded and the performance of the supplier awarded.
    Have you see that report yet?
    And it was late August the PM informed us that NIS Reports had been completed to 2015. Have you seen any of those yet?

  32. NorthernObserver Avatar
    NorthernObserver

    On that topic, I haven’t seen your good friend Yolande, aka Waru, aka Well Well & Consequences.
    I hope she is well.

  33. Hants Avatar
    Hants

    Jobs coming ?

  34. David Avatar
    David

    Protest mounts across the globe.

    https://www.aljazeera.com/news/liveblog/2023/11/3/israel-hamas-war-live-israeli-forces-gather-outside-gaza-

  35. David Avatar
    David

    @NO

    The public’s apathy and cynicism regarding politics and promises by politicians is real.

  36. TheOGazerts Avatar
    TheOGazerts

    “Just heard a woman in tears complaining about suffering in pain for many years.

    She also mentioned the mental anguish from having a settlement in the control of the usual suspects.”

    In a land where people prefer to suffer in silence and refuse to admit that they were outsmarted and robbed, the pain became so unbearable that the woman had to squeal.

    Further abuse is expected as the system will now try to punish her for crying out in pain.

    Here, use this Vaseline and try to relax the muscles involved.

  37. Bush Tea Avatar
    Bush Tea

    “The public’s apathy and cynicism regarding politics and promises by politicians is real.”
    ~~~~~~~~~~~~~~~~~~~~~~~~~~
    Good morning folks
    Bushie notes that the concept of ‘Brass Bowls’, languishing in abject self misery and ignorance, is becoming clearer to more of us…

    Don’t try to put a smoke screen on the issue Boss…
    It is NOT just with politics and politicians….ALSO with..
    Lawyers and justice
    Education and common sense
    Health and healthy lifestyles
    Ownership and borrowing
    Public health, cleanliness and waste management
    Roads and transport management
    Public services – ALL…
    ……..
    Steupsss.. It it MUCH easier to list areas where the (BB) public are not apathetic and cynical
    1 – Kadooment, Reggae in the hill, Jazz on de beach etc
    2- Buying a lotta shiite fuh Xmas
    3- De 11 plus (If they have a young child, or if they failed like Petra Wicky)
    4- ahhhh ummmm errrr …. whispering, complaining, begging

    What a place!
    What a curse!

    Reminds Bushie of Sodam and Gomorrah, when Lot was challenged to find just a few worthy men…

    One wonders if the visiting ‘angels’ are here yet…

  38. Good morning Bush Master Avatar
    Good morning Bush Master

    A wonderful Friday morning to the one thumper who exhibits moments of sanity.

    Perhaps, it may be the presence of brass bowlery that keeps him sane.

    Give thanks.

  39. William Skinner Avatar
    William Skinner

    The point we are missing is that when the science of economics is stripped of its mystery , and there really is none, it evolves like any other study.
    We have a Minister of Finance, who obviously does not enjoy the passion for the subject, and has deliberately left national discourse on government economic policy to others. Her main focus seems to be perpetual electioneering mode.
    Our economy is not evolving because there is no creativity in its leadership.
    We recall how some on BU praised a policy of borrowing and begging without even paying passing attention to the price and consequences of so doing.
    And the lack of vision and inattention to detail continues buttressed by now lame defenders of economic stagnation.
    Fortunately , for Mottley, the still floundering out of Parliament DLP, dubiously called the Opposition, seems incapable of surgically dissecting the lack of progressive economic planning now enveloping the country.

  40. John A Avatar
    John A

    @ Bush Tea

    Lord you painting a rough pictire of us as a people. Only interested in fetting and buying crap while paying little interest to financal planning and matters that concern them. Lord Bushie you mean we is a ” wuk up and lick out” people then?

    Dont tell nobody but I agree with you wholeheartedly. If I was the PM and I had new taxes to drop in wunna tail I doing it Kadooment week! That way wunna will not know till the next pay check.

    You see that thing called the 4th estate, I watch them at the PM talk ask a roll of foolish questions, which did nothing to seek enlightenment. Them want a bush bath and cut tail too!

  41. David Avatar
    David

    @John A

    Could be some of you are overly critical? Listened to a clip of Olu Walrond who complained social media paints too negative a picture of Barbados’ state of affairs. #weoutside nothing to worry about John A.

  42. David Avatar
    David

    Then again, we are known to be a people not very financially sophisticated.

  43. John A Avatar
    John A

    @ David

    Talk cheap but numbers don’t lie. Unlike some I don’t preach what I feel only what numbers support. The numbers I shared are clear for any to see, so I leave the spin doctors to try and challenge them. The problem is the numbers are there but they are not presented in a way that is easily understood. Cut away the pretty talk and big words and it’s there for all to see.

    Mind you let me say here that what the governor shared was all true. It was more a matter if what wasn’t said, but that is not his job. If the 4th estate was worth anything it would be theirs.

  44. David Avatar
    David

    More debt for taxpayers

    Government’s announcement that it plans to borrow $50 million from the Africa Export Import Bank (Afreximbank) to refurbish the Kensington Oval is not sitting well with the Democratic Labour Party (DLP).

    President Dr Ronnie Yearwood is calling for a more detailed breakdown of how the monies will be spent, stressing that there were several things about the deal that “do not add up”. He raised questions about the tendering process and whether a project which carries a price tag of $50 million can be undertaken in time for a Cricket World Cup that is a mere five months away.

    Yearwood queried: “Something does not smell right here. What is the precise breakdown of how this $50 million from Afreximbank will be spent? Does patching the roof and erecting the temporary seating cost $50 million? The T20 World Cup is only five months away . . . April next year. How can a $50 million upgrade be done in less than five months, considering design, spec, plan, procurement, tendering, and build? Where is this money really going?”

    On Monday Prime Minister Mia Amor Mottley announced that the loan, which would be allocated for the urgent refurbishment, would be obtained at a rate of seven per cent over a period of seven years.

    It is not clear if the refurbishments would take place ahead of the ICC T20 Cricket World Cup in April next year, during which Barbados would be host for several matches.

    Yearwood noted that Barbados was still repaying the loan obtained to refurbish the facility for the 2007 World Cup and the 2010 T20 World Cup and questioned the priority status of the proposed project.

    “Given the background of the economic report from the Governor of the Central Bank, and the fact Bajans are still struggling through a cost of living crisis where a small chicken can run you up to $30 or more, right-thinking Barbadians are asking Government about its priorities and borrowing, adding to debt.

    “Is the Kensington Oval loan, and at seven per cent, a priority when this Government, who undertook massive loans for World Cup in 2007, is still paying back that loan? The then Barbados Labour Party Government in 2006 borrowed $200 million, and we Bajans are still paying that back at $10 million a year until 2030. So now the same BLP are at it again, planning more debt,” Yearwood said.

    He also raised concerns about the terms of the loan, arguing that it was not as concessionary as it was being made out to be.

    “Mia Mottley thanked Afreximbank for providing the $50 million loan at concessionary interest rates; but at seven per cent, what is concessionary about that? This is the same Mottley that was bragging a few months ago about borrowing at a rate of one or two per cent,” Yearwood said.

    “Another loan for taxpayers to repay while we are still waiting to see the mini stadia that was promised. What happened to that? Is the National Stadium still happening? What about the $230 million Scotland District Road rehab project? What is the status on that? Lots of lofty plans and promises but no tangible outcomes, just more big spending, and more debt with nothing to show for it,” he said. (CLM)

    Source: Nation

  45. David Avatar
    David

    New tax regime ‘no surprise’

    However, private sector needs details, says BPSA chairman Tannis

    By Colville Mounsey colvillemounsey@nationnews.com

    The business community was not caught off guard by Government’s announcement of an imminent change in Barbados’ corporate tax regime.

    In fact, says chairman of the Barbados Private Sector Association (BPSA), Trisha Tannis, they have been anticipating the move for the last two years.

    Minimum rates

    On Saturday, Prime Minister Mia Amor Mottley put businesses on notice that in an effort to ensure Barbados remains off the blacklist of the Organisation for Economic Cooperation and Development and other international regulatory bodies, consideration must now be given to the global minimum tax rates of 15 per cent for companies of a certain threshold.

    In 2018, Government lowered the corporate tax rate across the board, with companies currently paying between one and five per cent.

    Tannis told the WEEKEND NATION

    that with Barbados agreeing since 2021 to be signatory to the agreement, the commercial sector had been asking, without success, for implementation details in order to plan.

    “It was not something that we were not anticipating given the announcement by the G7 that this was coming. What we were waiting for, and still continue to do, were the specifics. We need to know how it is going to be applied because it is not necessarily going to be a straightforward formula as the Prime Minister referenced that this would apply to companies in certain thresholds.

    “We need to know which businesses are going to be impacted both internationally and domestically. Without those details, it is going to be difficult to determine what the impact will be on the business community,” Tannis said.

    President of the Barbados Chamber of Commerce and Industry, James Clarke, said his members were also awaiting the details to determine the impact, if any, of the change in the tax regime.

    Timeline

    “We need to know what the timeline on this is. Is this going to be implemented in unison with everyone else? Is this a requirement for coming off the grey list? We need to find out a bit more about all of these things. If the global community has agreed to a harmonising of the tax rates, I cannot see Barbados saying no,” Clarke said, promising a more detailed response after consultation with his members.

    Meanwhile, Tannis said that while any increase in taxes reduces the profitability of companies, this must be weighed against the deleterious impact of being blacklisted. She pointed out though that Barbados as a business jurisdiction has more to offer than just a low-tax regime.

    “Businesses are going to have to decide to what extent does this development impact upon their model and their cost-recovery mechanism. So it is something that we really need to brace ourselves for and prepare for, but there are much bigger issues that face the country such as being grey-listed or blacklisted,” the BPSA chairman said.

    “This is the bigger picture that needs to be outlined and the bigger implications for our economy. It is not an easy choice to have to make as we try to hold on to our international businesses. Thankfully, a lowtax regime is not all Barbados has to offer and we need to exploit some of the other benefits of operating in a jurisdiction such as ours.”

    Source: Nation

  46. Hants Avatar
    Hants

    nuff nuff tourisses. sweet.

  47. Artax Avatar
    Artax

    “Numbers don’t lie” is a verifiable axiom. But, people have to ability to manipulate numbers to substantiate their specific biases. More often than not, those particular individuals become overly upset or defensive when challenged by persons who may not necessarily agree with their opinions, while presenting an alternative perspective, or are simply asking for explanations of issues raised. John A, you presented a price list to BU and provided the forum with a comparative analysis of 1975 and current prices. Although I understand the point you’re making about inflation, I have to agree with the Blogmaster that such a discussion must be approached hollistically, so as facilitate a rational debate about the issues. Absent from the discussion, are factors of inflation during the 48 year period, such as costs associated with manufacturing, goods and services available for sale, wages etc, that are ultimately passed on to consumers.

  48. John A Avatar
    John A

    @ Artax

    What you say is true in terms of conditions such as labour cost etc, the conditions though what ever they were, resulted in the outcome I showed. For example the 70s saw serious inflation due to the oil crisis, then they were years where inflation was basically flat.

    Going forward now in 2023 we may have high oil prices again. Then we had the hyper inflation with covid too. I think we will have other challenges as well in the years to come, I also foresee an economy growth wise much like the past. In other words higher inflation than growth at a personal level. We have to remember that for 10 years nobody got a raise, so to make up for that ground lost will be a difficult uphill battle for sure.

    Also remember the average multiplier of 12 between 1975 and now. That factor applies to many other things like car and homes as well, not just restaurant meals. If we had a crystal ball in the 70s and bought beach front land for instance we would be smiling today. I find the topic of inflation truly amazing to study. It shows how easy it is for the comfortable to become poor if they make the wrong financial decisions.

  49. Artax Avatar
    Artax

    Yes, John A. I agree with your above comments wholeheartedly. You’ve provided the forum with further explanations to clarify points you made. But, let’s not forget economic polices of successive political administrations, such as financing tourism, while neglecting manufacturing and agriculture. Angelus, Husbands, Winifred Enterprises, Hamden, Mapp’s Garment Factory and several other popular manufactuers no longer exist.

  50. David Avatar
    David

    @John A

    Rum talk.

    ——————

    CBCBARBADOS (@CBC BARBADOS) posted: There’s concern about new economic threats to the island’s rum industry. The issue has been a talking point at a week long conference at the Radisson Aquatica.

    https://t.co/lXhRrALGI1 #CBCNewsBarbados

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