Up and Away

Consumer prices in the twelve months ending January 2005, rose to 14.6 % from 13.8 % in December 2004, continuing last year’s rising price trend into the New Year. Consumer prices in the twelve months ending January 2005, rose to 14.6 % from 13.8 % in December 2004, continuing last year’s rising price trend into the New Year. The seasonally adjusted annual average jumped to 8.8 per cent from 7.6 per cent in December, the Central Bank said Monday.

A widening fiscal deficit, aided by loose monetary policy, sent up inflation by about one half to one per cent each month, during the last 12 months.

In January 2004, the twelve month point to point inflation was just 0.5 per cent, but inflationary funding of the budget deficit to finance massive handouts led by petroleum subsidies sent monetary aggregates and inflation careening to new heights.

The problem was compounded by loose monetary policy, with the Central Bank raising rates by only 50 basis points in the last year, while supply side factors such as a drought also affect food prices.

M2B, the broad money aggregate that Central Bank tracks, was up 19.2% in November 2004, (from 14% a year ago) even