Low inflation keeping CNMI on track

Akin to the slow rally of business activities in the islands, economic indicators are all pointing to a slightly higher but comparatively lower inflation rate in the Northern Marianas.

Citing the overall consumer price index which has remained relatively low since the early 1990s, government economists are upbeat CNMI would continue to enjoy an inflation rate confined within the annual average of 4.98 percent.

During the period covering the years 1991 to 1997, the Commonwealth registered an annual inflation rate average of 4.98 percent, according to the Department of Commerce.

If consumer prices would be contained within the average index points recorded last year, Northern Marianas’ inflation rate could be predicted to reach a little over five percent at the highest.

There is a very great possibility for the CNMI to post a slight increase in the average inflation rate for the next 12 months based on the current economic trend, both locally and region-wide, the commerce department said.

Based on the weighted consumer price survey released by the Central Statistics Division of the Department of Commerce (DOC) for the third quarter of 1999, overall price index of 268.5 registered a 1.7 index point increase compared with the previous year’s third quarter tally recorded at 268.3 despite the drop in food, housing and health & recreation costs.

Analysts attributed the third quarter price index increase to the closure of more than 2,000 business establishments in the Northern Marianas which dampened competition and pushed retail prices up.

Consumers are faced with costly products when there is lesser competition in the market. The closure of too many establishments may lead to monopoly, especially when the number of businesses in a particular field of business is trimmed down further.

Normally, fewer businesses that are able to survive a crisis dictate prices on the market, leaving the consumers at the losing end since there will be no other place to go to compare prices with.

In 1996, CNMI’s inflation rate was reported to have reached 3.2 percent, which was way below compared with rates recorded in other Asian economies.

Inflation is an abnormal increase in available currency and credit beyond the proportion of available goods, resulting in a sharp and continuing rise in price levels.

It generally refers to an increase in price levels brought about by a rise in the amount of money in circulation or by an increase in the total volume of spending.

In cases of higher inflation rate, the economy is likely to experience a downturn since it would be harder for businesses to acquire credits due to higher interest rates.

The expected rebound in the tourism sector, which experienced a “tamer” decline in visitor arrivals in recent months, should ease economic bottlenecks, which have exerted light pressure on consumer prices during the third quarter of last year.

During the 1988-1996 period, the Overall Index moved upward from 177.8 to 267.7 index value between the second quarter of 1988 to the last quarter of 1996, which is over two and a half times in its 1977 base.

The Overall Index fluctuated from quarter to quarter with a definite upward trend. Between 1988 and 1996, the Overall Index increased the highest in 1992 by 23.9 index points and increased the lowest in 1994 by 3.7 points.

The CPI Overall Index drops in some quarters suggesting price level decline from quarter to quarter.