Push-pull forces on local prices

The CNMI economy is showing both deflationary and inflationary trends, which could be “risky” and unhealthy, according to acting Commerce Secretary James Santos.

“There’s inequity. Some sections are showing some inflationary indications, while some are deflationary,” said Santos in an interview yesterday.

This came even as he reported that prices of goods in the CNMI showed an increase of .7 percent during the first two quarters of fiscal year 2006.

He said that based on the department’s consumer price index quarterly reports, a .7 percent overall increase was observed in all nine categories of goods, including food, construction, etc.

“The overall increase is .7 percent. We’d prefer it to stay the same or below, but then again, if you have prices that are deflated, it’s not good for the economy,” said Santos.

Deflation

He said one striking deflationary trend is observed in the restaurant business, with most of these businesses offering meals at very low prices.

“The economy has deflationary pressures. Just look at the restaurants on island. There’s so much food but the local base is still the same, or smaller. They bring down their prices so that they would either maintain or expand their market,” he said.

He said deflation is good for the consumers since they get reduced prices but “it’s risky” since it leaves no room for any cushion for the businesses.

“It’s good for customers but it’s not really healthy in the end because there’s a small profit margin. There’s less money. There’s no extra money to make improvement, hire new people, and re-stock,” he said.

He said businesses that are losing would eventually register an adverse impact on the overall economy.

A deflation is defined as “a fall in the general price level or a contraction of credit and available money.”

Inflation

Santos said inflationary trends are also observed due to increased shipping costs brought about by rising fuel prices.

“Prices of goods have actually increased. It’s mainly because of instability in fuel prices.

Inflation is “a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency.”

Santos would not categorically state which trend is more dominant.

“It’s very hard to pinpoint. You have one section of economy not improving. You have prices going down, and you have prices in some sectors going up,” he said.

The seeming abnormal trend happens “because people are adjusting in their spending.”

“They cut expenses in some areas and this is reflected in the overall economy,” he said.