The Tribune

By NEIL HARTNELL Tribune Business Editor THE Bahamas Electricity Corporation's (BEC) fuel charge increased by 37.1 per cent year-over-year for January 2012, as both the Central Bank of the Bahamas and private/public sector leaders warned that rising global oil prices remained the "one caveat" that could depress economic recovery prospects. The Central Bank, in its monthly economic and financial developments report for January 2012, raised the tone of its warnings on rising fuel prices and the potential impact on energy/transportation costs, noting that they were "exerting some upward pressure on domestic price levels". This is likely to mean inflation, and increased prices for both Bahamian consumers and businesses, reducing disposable incomes further and dampening economic recovery prospects. Apart from the BEC fuel charge, which rose by more than one-third year-over-year to hit 25.93 cents per kilowatt hour (kWh), a 1.4 per cent growth over December 2011 levels, the Central Bank said the average price of gasoline and diesel were up by 9 per cent and 23.3 per cent, respectively, year-over-year. As for the implications, the Central Bank said: "Price developments are likely to show some firming in the near term, given the persistent volatility in oil prices, due in part to the ongoing geopolitical tensions in the crude oil market." That is a reference to the ongoing concern over Iran's alleged nuclear weapons programme, plus the general political unrest across the Middle East, which remains the world's key oil producing region. Oil price-induced inflation was already impacting the Bahamas once again in late 2011, the Central Bank noted, with inflation for the year - as measured by the Retail Price Index - also up by 1.9 percentage points to 3.2 per cent. "For 2011, transportation costs, which are directly impacted by fuel prices, rose strongly by 9.4 per cent, outpacing the 4 per cent advance in the previous period, while accelerated average price increases were also evident for furnishing, household equipment and maintenance (4.3 per cent), restaurants and hotels (3.1 per cent), education (3.1 per cent), housing, utilities & fuels (3.1 per cent) - the most heavily weighted component of the index - and recreation & culture (1.6 per cent). "After registering respective declines of 1.2 per cent and 0.4 per cent a year earlier, the average costs for food & non-alcoholic beverages turned upwards by 1.9 per cent, and for communication by 1.3 per cent. The other categories either recorded a slowdown in price gains or a decline in average costs over the period." The implications of this for the Bahamian economy, and its recovery prospects in 2012, were not lost in either private sector leaders or government ministers. Winston Rolle, the Bahamas Chamber of Commerce and Employers Confederation's (BCCEC) chairman, suggested to Tribune Business that increased fuel costs were likely among the reasons for shipping companies recently increasing their Nassau freight prices. "Obviously, from what I've been watching in the US with gas prices, it's only a matter of time before we feel that as well," Mr Rolle told Tribune Business. "Gas prices have crept up by 15 cents per gallon in the US in the past two weeks, and unfortunately we've not started to see any positive turnaround in economic improvement that will help to mitigate that. We're still not out of the woods." Zhivargo Laing, minister of state for finance, acknowledged to Tribune Business that oil prices, and their inflationary effects, were the one potential handicap for a Bahamian economic recovery in 2012. "The one caveat is the rise in oil prices, and the extent to which it will impact on those gains we are experiencing," Mr Laing said. Arguing that the Bahamian economy was heading in the right direction, the minister agreed that not all may be sensing that yet. "On the employment front things might lag, that will start to catch up with improved economic circumstances," he added. "All these things are playing out in the economy of the Bahamas. While no one is going out and saying everything is rosy and fine, the reality is we are heading in the right direction."