?Inflation has continued on an upward trend for the fourth consecutive month, said the Central Statistical Office (CSO).
In its repo rate report released yesterday, the Central Bank said that headline inflation, measured by the 12-month increase in the Index of Retail Prices, rose to 7.3 per cent in April 2010 from 5.1 per cent in March. Following is an edited version of that report: "On a monthly basis, headline inflation increased by 3.2 per cent in April compared to an average increase of 1.1 per cent for the first three months of 2010. The monthly increase in April is the largest recorded since January 1990.
The bank said the faster rate of growth in food prices was the main contributor to the higher headline inflation rate. In the 12 months to April, food prices rose by 12.7 per cent from 6.9 per cent in March and from a low-point of 2.7 per cent in January. Food prices rose by a brisk 6.2 per cent during the month of April, led by increases in the prices of domestic produce, largely fruits and vegetables. On a 12-month basis, the prices of fruit and vegetables were, respectively, 60.2 per cent and 9.4 per cent higher than in April 2009.
Drought, food prices
The intense drought, which affected domestic food crop production over the past three months, has been mainly responsible for the increase in local food prices. The steady rise in inflation over the past few months is occurring against the background of continued sluggishness in domestic demand and weak economic activity. On a year-on-year basis to March 2010, private sector credit by the consolidated financial system contracted by 2.6 per cent, following declines of 4.1 per cent and 3.6 per cent in January and February, respectively. Consumer and business credit posted year-on-year declines of 2.5 per cent and 2.9 per cent, respectively, in March, following declines of 3.1 per cent and 5.4 per cent in the previous month. Real estate mortgage lending, though, has continued to remain quite robust growing by 7.4 per cent in March from 6.5 per cent in February.
High liquidity, low interest rates
High net fiscal injections and declining bank credit have contributed to a sharp build-up in liquidity in the domestic financial system, with excess commercial bank balances at the Central Bank averaging just over $2.0 billion in May. This accumulation in excess liquid balances in the financial system has served to keep short-term interest rates at record lows with the three and six-month treasury bill rates declining to 1.11 per cent and 1.27 per cent, respectively, on May 25 from 1.36 per cent and 1.48 per cent in January. The bank has decided to maintain the 'Repo' rate at 5.0 per cent. The next repo rate announcement is scheduled for June 25.
