The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

A Cabinet minister yesterday said the VAT cut has helped offset some of the inflationary impact Bahamian consumers are now feeling from higher prices on food and other essentials.

Senator Michael Halkitis, minister of economic affairs, told reporters ahead of the weekly Cabinet meeting that The Bahamas cannot escape broad-based inflation and price increases because the country imports most of what it consumes. As a price taker, it has little impact on the cost of goods other than via adjustments in taxation policy.

“What is happening is we import most of what we consume here in The Bahamas, and so prices have been going up due to certain challenges with the supply chain,” he said.

“We’ve seen prices at the highest level for quite a number of years in the United States, where they’re experiencing issues with supply and, of course, prices are going up as a result. Hopefully it works itself out over the next weeks and months so we can see a reduction, but it is a function of imported inflation.”

US price increases are occurring at rates not seen for decades. US inflation soared year-over-year by 7 percent in December 2021 - the seventh consecutive month in which it topped 5 percent. The month-over-month increase was 0.5 percent.

Most industries have felt sharp increases in raw material prices and labour costs due to backlogs and supply chain bottlenecks associated with the COVID-19 pandemic, while worker shortages have impacted ports, transportation and other key sectors. Many have blamed these shortages, and rising inflation, on the US government failing to yet scale back pandemic-related assistance.

Mr Halkitis, meanwhile, dismissed speculation that current inflation in The Bahamas is being caused by retailers hiking prices to take advantage of the VAT rate reduction to 10 percent. He said: “Be reminded now. VAT went down from 12 percent to 10 percent on thousands of goods and services.

“As a matter of fact, the reduction in the rate of VAT would have contributed to the prices not going up as much as if it had stayed at 12 percent.” Without the VAT reduction, prices would be higher than what consumers are experiencing now, he added.

Acknowledging the 7 percent US inflation increase, Mr Halkitis said: “I think the rate was about 7 percent, which I think was the highest in 30 years. So, we being an importing country, we will feel the effects of that. As I said, hopefully, in the coming weeks and months that begins to work itself out, and we can begin to see some reduction.”