The year 2011 has end­ed on a slight­ly neg­a­tive note as far as the T&T econ­o­my is con­cerned. The Cen­tral Bank, in its last re­po rate re­port for the year is­sued yes­ter­day, stat­ed that the lat­est da­ta re­leased by the Cen­tral Sta­tis­ti­cal Of­fice (CSO) show that in­fla­tion con­tin­ued to creep up in No­vem­ber. The bank said the in­crease was main­ly due to the high­er price of food as a re­sult of flood­ing in the last quar­ter of 2011. Head­line in­fla­tion, mea­sured by the 12-month in­crease in the In­dex of Re­tail Prices, rose to 5.7 per cent in No­vem­ber, up from 3.7 per cent in the pre­vi­ous month. On a month­ly ba­sis, the gen­er­al price lev­el rose by 1.2 per cent in No­vem­ber, fol­low­ing a de­cline of 0.1 per cent in Oc­to­ber. There was some good news, though. The bank said that for the first time 23 months, there was growth in busi­ness lend­ing.

Be­low is the Cen­tral Bank's re­po re­port:

The in­crease in the head­line in­fla­tion rate was main­ly at­trib­ut­able to high­er food prices. For the first time in six months, year-on-year, food in­fla­tion reached dou­ble dig­its-12.3 per cent in No­vem­ber. This in­crease may have been the re­sult of the flood­ing of some agri­cul­tur­al ar­eas in late Oc­to­ber and ear­ly No­vem­ber which im­pact­ed lo­cal sup­ply and prices of fruits and veg­eta­bles. For the year to No­vem­ber, fruit prices in­creased by 51.9 per cent, com­pared with 34.1 per cent in Oc­to­ber, while prices of veg­eta­bles rose by 8.1 per cent com­pared with 3.7 per cent in Oc­to­ber. Re­tail prices for sev­er­al oth­er cat­e­gories of food items like­wise in­creased on a 12 month ba­sis to No­vem­ber. Prices of oils and fats rose by 14.9 per cent, meats by 7.7 per cent, fish by 6.7 per cent, and milk, cheese and eggs by 8.3 per cent.

Core in­fla­tion

Core in­fla­tion, which ex­cludes the im­pact of food prices, has been rel­a­tive­ly well con­tained for most of 2011, in­dica­tive of the over­all slug­gish de­mand con­di­tions in the econ­o­my. In No­vem­ber, core in­fla­tion slowed to 1.4 per cent on a year-on-year ba­sis from 1.6 per cent in Oc­to­ber. While most sub- cat­e­gories re­mained un­changed, prices de­cel­er­at­ed for al­co­holic bev­er­ages and to­bac­co (0.8 per cent com­pared with 4.6 per cent in Oc­to­ber), health (0.5 per cent com­pared with 1.2 per cent) and recre­ation and cul­ture (0.5 per cent com­pared with 0.6 per cent). The sole sub-cat­e­go­ry to reg­is­ter an in­crease was cloth­ing and footwear, where prices rose by 2.4 per cent in the year to No­vem­ber com­pared with 1.9 per cent in Oc­to­ber.

Pri­vate sec­tor cred­it

There are en­cour­ag­ing signs that pri­vate sec­tor cred­it ex­pan­sion is con­tin­u­ing to stage a slow re­cov­ery. On a year-on-year ba­sis to Oc­to­ber 2011, pri­vate sec­tor cred­it ex­tend­ed by the con­sol­i­dat­ed fi­nan­cial sys­tem grew by 1.4 per cent fol­low­ing an in­crease of 0.1 per cent in Sep­tem­ber. While con­sumer and re­al es­tate mort­gage lend­ing con­tin­ue to grow, busi­ness lend­ing al­so reg­is­tered growth for the first time in 23 months. Lend­ing to con­sumers rose by 3.7 per cent (year-on-year) in Oc­to­ber, slight­ly low­er than the 4.0 per cent av­er­aged in Au­gust and Sep­tem­ber. Re­al es­tate mort­gage lend­ing re­mains a strong loan cat­e­go­ry, ris­ing by 8.9 per cent in Oc­to­ber. Mean­while, loans to busi­ness­es grew by 1.6 per cent-the first in­crease since Oc­to­ber 2009-as com­mer­cial banks ex­pand­ed their lend­ing to pri­vate com­pa­nies.

Buildup in liq­uid­i­ty

The do­mes­tic fi­nan­cial sys­tem re­mained very liq­uid at the end of the year. Com­mer­cial banks' ex­cess bal­ances at the Cen­tral Bank av­er­aged just over $5.2 bil­lion in No­vem­ber, ris­ing close to $6 bil­lion by the last week in De­cem­ber. A pick­up in gov­ern­ment ex­pen­di­ture in the first quar­ter of its fis­cal year 2011/2012, fi­nanced by a draw­down in gov­ern­ment de­posits at the Cen­tral Bank, has con­tributed to the build-up of fi­nan­cial sys­tem liq­uid­i­ty. Giv­en the ex­tent of liq­uid re­sources avail­able, com­mer­cial banks did not need to ac­cess the in­ter-bank mar­ket nor the Cen­tral Bank's re­po fa­cil­i­ty. The ac­cu­mu­la­tion of ex­cess liq­uid bal­ances in the fi­nan­cial sys­tem has served to keep short-term in­ter­est rates at record lows with the three-month trea­sury bill rate reach­ing 0.28 per cent in late De­cem­ber, slight­ly high­er than the 0.23 per cent in No­vem­ber.

The rate on US 91-day trea­sury bills al­so end­ed the year at a low of 0.03 per cent, re­sult­ing in a mar­gin­al widen­ing of the spread be­tween the TT and US three-month trea­sury bill rates to 0.25 per cent from 0.20 per cent a month ear­li­er. While there are signs that cred­it de­mand may be in­creas­ing, the ba­sis for a sus­tained eco­nom­ic re­cov­ery is still to be es­tab­lished. In the cur­rent cir­cum­stances, the bank has de­cid­ed to main­tain the 're­po' rate at 3.00 per cent. The bank will con­tin­ue to keep eco­nom­ic and mon­e­tary con­di­tions un­der close re­view. The next re­po rate an­nounce­ment is sched­uled for Jan­u­ary 27, 2012.