Russia/Ukraine war fueling price increases

by BRIA KING

BETWEEN DECEMBER 2020 and December 2021, the price of goods and services utilised by an average household in St Vincent and the Grenadines (SVG) increased by more than three per cent.

And while some are of the view that world events like the Russia-Ukraine conflict will not have an effect on Caribbean countries like SVG, experts believe that the rise in prices of commodities already being seen locally, regionally and globally, will only be exacerbated in the near future.

“I don’t think there’s any country in the Caribbean that’s not going to be affected by the conflict in Ukraine as a result of the invasion of Russia. The most obvious one we’ve been seeing so far is the increase in the cost of fuel. Oil prices have soared. I think the last time I checked, it was above US$120 per barrel, which hasn’t been the case for about eight years… at least, if my memory serves me correctly,” Dr Dalano DaSouza, assistant lecturer in Economics at the UWI Cave Hill campus told SEARCHLIGHT in an interview this week.

DaSouza, a Vincentian finance professional and economic researcher, noted that oil and fuel play a critical role in almost all, if not every aspect of the economy; from the generation of electricity and other utilities to citizens’ daily commute.

Fuel is one of many commodities which have seen significant increases locally within the past year.

According to the Consumer Price Index Monthly Statistical Bulletin published in December 2021, the point to point inflation rate stood at 3.4 per cent and was due to relative price changes during December 2021, when compared with the same period in the previous year.

The bulletin, which is prepared by this country’s Statistical Office, noted that monthly inflation rates fluctuated throughout 2021, with the highest rate of 0.5 per cent being recorded in the months of March and April.

The lowest rate was registered at -0.1 per cent in May.

The document also reports that the largest increases can be seen within three categories: ‘Housing, Water, Electricity, Gas and other fuels’, ‘Transport’ and ‘Food and Non-Alcoholic Beverages’.

These three categories recorded increases of 6.8 per cent, 4.5 per cent and 4.2 per cent respectively.

The average retail price for a 20lb cylinder of cooking gas in December 2020 was $33.85. It had risen to $43.90 — an almost 30 per cent increase by the end of the same period in 2021.

Similarly, a gallon of unleaded petrol which stood at $10.50 in December 2020, had risen by almost 38 per cent to $14.48 by the end of 2021.

According to the Statistical Office’s Consumer Price Index Bulletin, basic food items such as rice, flour, sugar, and a variety of meat kinds also experienced increases ranging from as low as 2 per cent to as high as 25 per cent.

DaSouza noted the already increasing prices in SVG even before conflict began between Russia and Ukraine and said there would more than likely be a “knockon effect” here in the manufacturing and tourism sectors as a result of the conflict in the two countries; one of which is considered to be “the breadbasket of Europe”.

According to international reports, Ukraine was expected to account for approximately 12 per cent of the world’s wheat exports, and nearly a fifth of global maize production in 2022.

Experts now believe that both production and export of these products will be significantly affected by Russia’s invasion, which will help to drive the increase in international wheat prices.

“I also expect that as a consequence of the Ukraine conflict, that we are going to see increases in food prices, even apart from that which is caused by cost push inflation. A lot of that has to do with the fact that a lot of people refer to Ukraine as the breadbasket of Europe, because a lot of agricultural production happens in Ukraine,” the financial professional said.

DaSouza expressed belief that SVG would not be immune to an increase in commodities such as flour and others which are by-products of wheat.

He said the expectation is that the increase will be passed on to consumers, which can also in the long term, affect the average man’s disposable income.

“…If you have less disposable income, it means you can spend less on entertainment and other things, and therefore there are indirect effects on the overall economy because while you can readjust in terms of what you eat, what you purchase at the supermarket, you still have to eat so if the prices become too much, then you’re going to adjust in other parts of your life…” DaSouza told SEARCHLIGHT. He added that this has potential to stymie the recovery being observed as the world opens back up from COVID-19.

“It’s a scenario that we hope plays out quickly, and the markets are spooked right now so we expect in the short term prices are going to increase but of course, that has potential to change as well…if the fighting ends, there is peaceful resolution and so on, there is hope that the markets can reverse themselves overtime…” he said.

“There is hope but for now, governments need to be proactive and I hope that our government in St Vincent and the Grenadines is being as proactive as it can, given its fiscal space and limitations and so on, to try to be proactive in dealing with the fallout of this particular conflict.”