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Slower but not lower: decelerating inflation rate does not equal reduced prices

Belize’s headline inflation rate has been cut in half, having fallen from 6.6% in January to 3.3% as of June, but that does not mean that average prices are coming down, economist Dr. Phillip Castillo explained.

Castillo, an economics lecturer at the University of Belize and a member of the Statistical Institute of Belize (SIB)’s board, explained that the only subcategories that show negative percentages can be said to be experiencing lower prices. Belize’s current headline inflation’s positive figures, on the other hand, signal increases, albeit at a slower rate of increase.

Castillo—who underscored that inflation, by definition, is the pace at which prices rise—explained that SIB measures inflation by checking the prices of an imaginary shopping cart of essential goods and services. For example, if two pounds of flour costs $1.00 and that rises by 5 cents compared with a year earlier, then flour inflation would be 5 percent.

If that same commodity is said to increase at a rate of one percent a year later, for example, it simply means (hypothetically speaking) that the flour price has gone from $1.05 to about $1.06. It did not come down, but rather, it increased, although slower than a year earlier.

The headline inflation rate is a broad, composite measure that considers an overall price increase.

According to SIB data, of the thirteen sub-indices that comprise the composite consumer price index (CPI), only four show negative rates that suggest actual price reductions: “Clothing and Footwear;” “Housing, water, electricity, gas, and other fuels;” “Transport;” and “Information and Communication”.

Conversely, the sub-category “Food and Non-alcoholic Beverages” remains at double-digit rates, slowing to 11.9% in June from a peak of 15.8% in March 2023. This suggests that food prices—relative to the same period in 2022—increased by almost 12%.

Keeping with Castillo’s example, the difference between the March (15.8%) and June (12%) rates—assuming that both had the same hypothetical starting point of $1.00—is the flour going up to $1.16 as opposed to $1.12, respectively.

“Every household experiences inflation differently,” said Castillo. “A home with more members, different incomes or resources, will have different purchasing power and needs.”

The main impact on an individual’s everyday life is the increase in the price of goods. Weekly grocery shopping will jump up in cost, and for consumers with less disposable income, the consequences of this can become problematic. Families could fall into financial difficulty as a result.

Combine the increase in the price of everyday goods with stagnating wages, and the nation could enter a cost-of-living crisis. This is typically understood to be a time when many individuals struggle to balance their income with their expenses.

Steep inflation rates are impacting many economies around the globe for several reasons. The impact of the COVID-19 pandemic has contributed to the higher inflation rate. Supply chain issues due to lockdowns in China and other international manufacturing hubs have resulted in significant disparities between supply and demand.

Furthermore, the Russian invasion of Ukraine drastically affected food costs worldwide. This has significantly increased the cost of food and utilities, leading to global inflation.

More recently, Russia’s decision to exit the Black Sea Grain deal has also pushed up wheat prices. India’s decision to ban certain rice exports has also impacted the global rice market, given that India is one of the largest rice exporters.

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