Is Inflation a Bad Thing?

With global inflation on the rise, Trinidad and Tobago is already beginning to feel the pinch. While many political arms, unions, and other concerned citizens feel obliged to protest against the rise in prices of basic goods, as economists, we have a moral obligation to inform people how this thing works.

Without beating around the mulberry bush or boring you with some farfetched neoclassical theory, we will jump straight into the meat of the matter.
1) This is why inflation might not necessarily be all doom and gloom. Inflation can increase Productivity (especially boosting export capability)
2) Encourage prudent spending patterns (eventually lowering our consumption of foreign goods and services)

Confused yet? If you are…no worries. Allow us to break it down like a fraction.

Whenever inflation begins to trend upward, try not to see this as an apocalyptic event. Instead, think of it as an amber light that flashes on your vehicle’s dashboard, which signals that something is awry. Probably, your battery is about to die, fuel is running low, or maybe a sensor has blown.

Likewise, inflation is a sign that there is too much money chasing after too few goods, which is primarily caused by supply-demand imbalances.

So how can we see the bright side of inflation? Well simply put, it provides us with the opportunity to press the reset button and strengthen our domestic economy, creating ‘positive’ pressure to boost local production.

Consumers expect prices will continue to rise as a result of inflation. People prefer to buy now rather than pay more later while prices are rising. In the short run, this raises demand. As a result, retailers are selling more items and manufacturers are producing more. To fulfill demand, they are more likely to hire new employees. It promotes economic progress by creating a virtuous loop.

For example, the current rise in inflation is mainly due to global supply shortages of basic commodities, and the best approach for us is to slowly wean ourselves off expensive imported goods while consuming more domestic goods. This decision in turn encourages our local manufacturers and farmers to become more productive and probably even venture into exporting.

But what about the essentials that cannot be produced domestically? We still need to import them to survive….not so? Well, the remedy is to simply encourage local businesses and producers to become more Export-Dominant or as we say, “Earners and not Users of Foreign Exchange.”

Thus, instead of resisting inflation and seeing it as a disruptive force, let’s change our perspective. Let’s see it as a way to strengthen our ability to produce.

We can safely bet that each citizen consumes foreign goods, but ask yourself these questions: “Do you produce something that earns foreign currency?” or “Does the company you work for sell to foreign markets?”

For example, Trinidad and Tobago's annual food import bill averages around TT$ 5 billion. And considering our voracious appetite for imported food items, imported inflation will continue to impact the domestic market. Think about this for a second. Is imported inflation acting as a push factor to develop our agricultural sector? Do we have the capacity to turn coconuts, cocoa or even chocolate manufacturing, and coffee into foreign exchange products? The agro-processing industry provides an avenue for Trinidad and Tobago to increase local production and reduce the food import bill, as well as inject foreign exchange into the economy.

You see what we are getting at.

Sure, it’s easy to say, “That is why we have oil and gas.” While our hydrocarbon industry is a major contributor to foreign exchange, we must remember that these are non-renewable resources. We can all and should be doing more to increase our productivity. Trinidad and Tobago is rife with creative individuals, and given that technology is providing us with avenues to reach international markets, it is an opportunity to earn foreign exchange.