The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank’s governor yesterday warned hard-pressed Bahamian consumers that soaring inflation may not yet have peaked - although record-setting real estate demand is one area set to “normalise”.

John Rolle, in his latest quarterly economic briefing, suggested that there will be no immediate relief from the cost of living crisis by predicting that record-setting inflation will “at a minimum hover” at present levels and potentially increase further.

Speaking after the Bahamas National Statistical Institute (BNSI) last week revealed that the annual inflation rate to August 2022 eased slightly to 6.3 percent, compared to 7.2 percent for the 12 months to July, Mr Rolle signalled that this nation possesses few policy tools to counter price increases since it imports virtually all it consumes.

With inflation largely an imported phenomenon due to global energy prices and other factors, he said: “The rate has not shifted drastically from August. I think we should be mindful that, until we see stability and the levelling off of inflation in The Bahamas’ major trading partners, we can anticipate that there will continue to be some pressures throughout The Bahamas.

“From that point of view, we should expect at a minimum that the inflation rate is going to hover at levels we’ve been seeing and, potentially, get a little but higher until the rate cools off in the US and other countries where The Bahamas has strong connections and ties.”

Mr Rolle gave no indication of when an inflation easing may arrive. Much depends on whether the US central bank, the Federal Reserve, can cool price rises in The Bahamas’ major trading partner without sparking an economic contraction or recession that impacts this country’s tourism industry. The US monetary policy architect thus faces a fine balancing act that could be a gamble which backfires.

More immediately, Bahamian middle class and low income consumers will continue to see living standards, their quality of life, purchasing power and disposable income eroded by inflation and rising prices. This has prompted the Government to take action through a major expansion of the price control regime, bringing it into conflict with the food and pharmaceutical sectors, with the problem set to be worsened by Bahamas Power & Light’s (BPL) fuel charge hike.

Meanwhile, asked whether record high real estate demand and inflows will bottom out, Mr Rolle agreed that they will “normalise” although he declined to predict a date for when this will happen. He added that rising global interest rates will likely make it more difficult for some foreign investors to obtain financing for Bahamian real estate purchases, while post-COVID demand for more remote locations may wane.

“I cannot speculate as to the timing of when it bottoms out, but we should be mindful that the cost of finance will have an impact on some of the investors’ ability to participate in this market,” Mr Rolle said. “But recall some of this preference is being expressed because of the COVID-19 conditions and persons wanting to live in localities and countries where they can have more access to the outdoors and not be so exposed to COVID related risks.

“From that point of view, we should be mindful that some of what we’re experiencing now is a shift adjustment and once we get beyond the adjustment, and I don’t want to speculate as to the duration of that, we then need to think of addressing ways to define the real estate or residential product. We should expect the growth level to normalise.”

But, while rising global interest rates will act as “some drag” on demand for Bahamian real estate, Mr Rolle added that there was also a question of “whether we’ve even caught up with demand already experienced”. Real estate activity translates into construction work, and this “impulse” had seen investment in “core tourism-related infrastructure - especially at the Nassau Cruise Port and the cruise industry’s private islands.

Turning to credit quality in the commercial banking industry, the Central Bank governor added: “An improving trend has been established. The delinquency rate on private sector credit has declined gradually over the course of 2022.

“In this context, the Central Bank also continues to deliberately target significant medium-term reduction in delinquencies. Tackling the delinquency rate, and increasing the pool of qualified borrowers, which are both favourably influenced by overall economic conditions, are important to stimulating more lending....

“There remains a strong recovery element in growth for both 2022 and 2023, associated with pent-up demand for travel. This is net of the projected slowdown in the global economy, as leading central banks increase interest rates to neutralise inflation, and as energy prices stay elevated, largely due to the war in Ukraine,” he continued.

“The downside economic risks continue to warrant a prudent, measured approach to foreign exchange market policies. However, accommodating increased private sector lending and increased domestic financing of the fiscal deficit are also compatible with this approach.”