Mr. Speaker, the increases in prices which Barbadians have been experiencing particularly over the past few months, are not unique to Barbados. Inflation is on the rise globally, affecting all economies irrespective of size and level of development whether developed economies, economies in transition or developing economies.
Global prices rose in 2021 and into 2022 for various reasons. In response for the COVID-19 pandemic, major economies like the United States and the Eurozone have pursued supernormal expansionary macro-economic policies in an effort to stimulate their economies. This contributed to a surge in demand, including for energy, especially after these economies began to ease COVID-19 restrictions.
However, supply has not yet been able to match demand. In particular, there were more unexpected gas production outages during this period. The supply constraints were exacerbated by the under-investment in fossil fuel production over the past few years, due in part to the global push for greener sources of power.
The significant fallout from COVID-19 has also brought logistics and supply chain pressures, such as port congestion and freight capacity constraints. These pressures continue to impact all industries globally, some more than others.
In addition to these factors, several major advanced economies face labour tightness, which have driven up labour costs, and in turn passed through to inflation. These combined factors have led to a rise in global inflation in the major economies in 2021.
At the beginning of 2022, there were some hopes that global inflationary pressures would ease over the course of the year as the supply situation improved.
However, the war in Ukraine and the resulting sanctions have now dashed those hopes for a quick end to rising inflation from the COVID-19 related supply bottlenecks seen across the global economy during 2021 and at the outset of 2022. With the war in Ukraine, global inflation has persisted and is clearly impacting global food supplies, resulting in higher food prices.
It has also led to a surge in prices across a wide range of energy-related commodities. These higher energy prices have lowered real incomes, raised production costs, tightened financial conditions, and constrained macroeconomic policy especially in energy-importing countries such as Barbados.
In short, the war has contributed to a further spike in global inflation. Inflation in Germany and the United States has already risen to nearly 8%, the highest in 40 years. War-induced commodity price increases and broadening price pressures have led to 2022 inflation projections by the International Monetary Fund of 5.7 percent in advanced economies and 8.7 percent in emerging market and developing economies—1.8 and 2.8 percentage points higher than projected last January.
Multilateral efforts to respond to the humanitarian crisis, prevent further economic fragmentation, maintain global liquidity, manage debt distress, tackle climate change, and end the pandemic are essential. The pace of consumer-price increases is expected to slow to 2.5% and 6.5% respectively in emerging and developing nations in 2023.
SOURCE: Minister in the Ministry of Finance & Economic Affairs, Ryan Straughn