Inflation rate remains below 5 %

The CNMI continues to enjoy a relatively low inflation rate confined within the annual average of below five percent despite dramatic slowdown in economic activities brought about by the trickling number of international visitors into the islands since 1998.

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.

While the closure of close to 2,000 business establishments since 1998 posed threats of higher consumer prices, the CNMI economy managed to prevent dramatic increased in commodity prices, allowing the inflation rate to stand still at below five percent.

Based on the current economic trend, both locally and region-wide, the commerce department is anticipating a modest increase in the average inflation rate for the remaining months of the year 2000 due to the marginal increase in the local consumer price index.

A weighted consumer price survey released by the Central Statistics Division of the Department of Commerce for the 4th quarter of 1999 revealed a 3.4 index increase in the five commodity sectors to 269.6 from the previous year’s 266.2.

The 4th quarter of 1999 tally registered a slight increase for the five commodity groups — food, housing, transportation, apparel and upkeep, and health & recreation — at 1.1 index points when compared with the previous quarter’s 268.5 points.

Compared with the 1998 level, the average price for the fourth quarter in the food group remained at 205.7 although the sector increased by 0.1 index point from the previous quarter’s level of 205.8 points.

The housing sector registered a whooping 10.6-point increase from 1998’s 215.2 to last year’s 225.8 points. Third quarter figure was recorded to have reached 223.8 points, lower by two points from the fourth quarter tally.

The apparel and upkeep group inched upwards to 222.7 points during the fourth quarter of 1999, from 212.8 index points during the same period in the previous year. The sector registered a 5.8-point increase compared with the third quarter’s 216.9 points.

Resulting from Continental Micronesia’s decision to downsize its Northern Marianas operations, the transportation sector edged up by 7.9 points from 325.3 index points two years ago to 333.2 points last year.

Only one sector — the health & recreation group — glide down at 551 points during the October-December 1999 period from 552.5 during the same quarter although it is slightly up from the third quarter’s 550.2 points.

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 and Western Pacific 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.

American economists said, however, that inflation of two to three percent a year actually benefits the economy. They said worker productivity would decline, unemployment would rise and the overall economy would sag if inflation were to fall to zero.