Perspectives 2018 : a year of rising prices?

The New Year 2018 has started with some commodity price hikes. Bad weather prevailing since end of December 2017 has seriously affected major vegetable cultivations across the island, resulting in price rise. Last week, tea prices were raised and this week it was the turn of soft drinks. Will this year be a year of rising prices?

Consumers are having a hard time this January. The risk of a price hike is real in the case of several essential commodities and services. Indeed, the population has not yet fully digested the substantial increase in the price of fuel last December. Especially when most people were under the impression that the authorities had obtained a good deal from Saudi Arabia in the wake of the recent fuel crisis.

Then parents had to cope with increased school van fees in many regions, a direct consequence of the higher fuel prices. Afterwards, bad weather took its toll on crops and consumers started facing higher vegetable prices. Even the price of tea, though unrelated to the weather, was not spared. Does this tendency means 2018 will be an inflationary year? According to observers, the ingredients of a general rise in prices are there.

Prices of commodities are rising on the global market, and Mauritius will feel the consequences. For example, rising costs of imported raw materials have prompted Phoenix Bev, bottler of soft drinks, to raise its retail prices. Other bottlers might follow suit. Ironically, the dollar rate has been going down lately, from Rs 37 to Rs 33.

Repo Rate

The next meeting of the Monetary Policy Committee (MPC) of the Bank of Mauritius is being eagerly awaited by the business community. Will the Repo rate be lowered? What will be the new policy of the Central Bank after the appointment of a new Governor? The meeting is scheduled for 28 February 2018. A lower Repo Rate will cause the rupee to depreciate, much to the delight of exporters and the tourism industry but will affect importers and consumers of goods and services. However, a lower Repo Rate also means lower interest rates on loans and credit, which is welcomed by debtors. 

Inflation Rate

The headline inflation rate for the twelve months ending December 2017 works out to 3.7%, compared to 1.0% for the twelve months ending December 2016. The year-on-year inflation rate for December 2017, as measured by the change in the CPI for December 2017 relative to December 2016, works out to 4.2%. The main contributors to the change in the index between November and December 2017 were rise in prices of vegetables and of fuels.

Price Observatory

The Price Observatory, set up in September 2013, was discontinued in August 2015. It was replaced by the national Price Consultative Council (NPCC) with a larger mandate. A Price Observatory in most countries is an interactive information platform for policy makers, civil society, consumer watchdogs, the private sector and businessmen to identify price crisis, price structure and causes of price rises, and to formulate policies and actions to contain rising prices.

But the local version of the Price Observatory proved to be a mere price comparator, showing us which supermarket in Mauritius had the lowest prices. Every month the best supermarket was designated and the Price Observatory seemed to be doing free advertising for supermarkets. It was thus discontinued amid criticisms.

The National Price Consultative Council, on its side, has a greater role to play but it does not yet have an interactive website to inform the public of its workings and achievements. It is also worth noting that the website of the Consumer protection Unit does not seem to have been updated since years.

Jayen Chellum : “Most price hikes are unjustified”

Jayen Chellum, General Secretary of the ‘Association des Consommateurs de l’île Maurice’ believes that prices will continue to rise this year as there is an inflationary tendency. “However, I feel that many cases of price increases are not justified. For example in the case of petroleum prices, the various contributions inflate the end price, much to the detriment of consumers,” Jayen Chellum explains.

“We have a ‘Laissez-Faire’ economy which means the market operates in an unregulated manner, and this encourages potential price abuses, while the government looks on.” He cites the example of the price of goat meat last December, which saw an increase, but the government did not intervene. But what does Jayen Chellum think of the National Price Consultative Council?

To this question, he replies that the NPCC is paralysed by the non-intervention of the authorities on crucial issues, despite various demands by the ACIM. “The NPCC also plays the role of adviser to the government in consumer matters, but the government often fails to listen.”

Arvind Nilmadhub : “We should adopt new cultivating methods”

Economist Arvind Nilmadhub says he does not understand why we do not invest in new vegetable production methods, such as tunnel farming, hydroponics or otherwise, to mitigate the effect of bad weather on crop production.

“The technology and knowhow is there. The authorities must encourage small farmers to innovate and give them a helping hand. It might be costly initially but it pays off in the long term.”  He says that the population always complains of shortage of vegetables and higher prices whenever floods or cyclones strike us, but we do nothing to improve the situation. He further states that this year, commodity prices are likely to see a rise both because of local factors and outside factors.

“Global prices are rising. If world fuel price rise, then this has an effect on freight. Similarly, imported raw materials if paid higher will raise production costs in Mauritius. “The strength of the rupee is also an important factor. A strong rupee means our imports are cheaper. If the rupee depreciates, then it costs more to import.”

Suttyhudeo Tengur : “We must understand the situation”

The Director of the ‘Association for the Protection of the Environment and of Consumers’ (APEC), Suttyhudeo Tengur,  states that Mauritius is going through a crisis with spells of bad weather since the end of December 2017 and this has an impact on the economy, such as prices of vegetables.

“We must understand the situation and cope with it. Prices will rise if crop production suffers. I appeal to each stakeholder to shoulder his responsibility. Vegetable resellers should not abuse of the situation. They should understand the misery faced by small planters.” Suttyhudeo Tengur further declares that this year will see an inflationary trend, worse than last year.

Gavin Ng : “It’s a spiral cycle”

Gavin Ng, Analyst, explains that prices will always rise because costs of production rise. “If prices of raw materials and cost of labour rise, then producers will pass over the higher costs to consumers in the form of higher prices of goods and services. Costs of production will rise if imported raw materials are purchased at a higher price on the world market. Similarly, an increase in wages will push up costs and thus induce price rise.”

Gavin Ng cites the minimum salary which might be one factor contributing to price hikes soon. “Private enterprises have no alternative but to increase their price in order to survive, else they will have to close down or lay off workers.

Prithviraj Fowdur : “School materials are very affordable this year”

Prithviraj Fowdur, economist and also owner of Antara Bookshop, states that prices of school text books and other materials are very affordable this year. “Normally, parents do not complain about prices of school materials as they are always eager to give the best to their children.

This year we did not see any shortage of school books as is usually the case every year. And the prices of text books were very affordable. This is partly due to the fact that they have been produced by the Mauritius Institute of Education.” Prithviraj Fowdur recalls that Antara Bookshop also puts at the disposal of students quality second hand books at very affordable prices. “This is our way of contributing to the education of children.”