NMI inflation rate stands still at below 5%

The CNMI continues to enjoy a relatively low inflation rate confined within the annual average of below five percent despite dramatic slowdown in economic activities brought about by the trickling number of international visitors into the islands since 1998.

During the period covering the years 1991 to 1997, the commonwealth registered an annual inflation rate average of 4.98 percent, according to the Department of Commerce.

While the closure of close to 2,000 business establishments since 1998 posed threats of higher consumer prices, the CNMI economy managed to prevent dramatic increased in commodity prices, allowing the inflation rate to stand still at below five percent.

Based on the current economic trend, both locally and region-wide, the commerce department is anticipating a modest increase in the average inflation rate for the remaining months of the year 2000 due to the marginal increase in the local consumer price index.

In 1996, CNMI’s inflation rate was reported to have reached 3.2 percent, which was way below compared with rates recorded in other Asian and Western Pacific economies.

Inflation is an abnormal increase in available currency and credit beyond the proportion of available goods, resulting in a sharp and continuing rise in price levels.

It generally refers to an increase in price levels brought about by a rise in the amount of money in circulation or by an increase in the total volume of spending.

In cases of higher inflation rate, the economy is likely to experience a downturn since it would be harder for businesses to acquire credits due to higher interest rates.

American economists said, however, that inflation of two to three percent a year actually benefits the economy. They said worker productivity would decline, unemployment would rise and the overall economy would sag if inflation were to fall to zero.

A team of prominent economists has concluded that inflation of 2 to 3 percent a year, which Americans have been seeing lately, actually benefits the economy. They suggest that eradicating inflation altogether, a goal of some Federal Reserve officials, may do more harm than good.

If inflation were to fall to zero, worker productivity would decline, unemployment would rise and the overall economy would sag.

The Fed — which is required by law to seek price stability and maximum employment — raised interest rates six times in the last year to thwart inflation. While it paused from its tightening spree at the most recent meeting this week, policymakers have left the door open for more rate rises.

But if inflation were to fall near zero, workers would get minuscule pay gains, if any, because firms would not receive higher prices for their products. Worker morale would suffer and so would productivity. That would hit profits, leading to worker layoffs and a slumping economy. (ARF)