Rise in costs, but economy strengthening as 2018 comes to a close
The latest economic outlook for The Bahamas shows that, despite the continued and gradual rise in the cost of living due to consumer price inflation in the wake of the increase in value-added tax (VAT), the economy is expected to strengthen as 2018 ends.
In the most recent Monthly Economic and Financial Developments (MEFD) report for October, the Central Bank of The Bahamas (CBOB) noted that during the 12 months to August, consumer price inflation — as measured by the All Bahamas Retail Price Index — quickened by 58 basis points to 1.75 percent.
“This was mostly driven by restaurant & hotels (5.2 percent), recreation & culture (3.8 percent) and food and non-alcoholic beverages (2.3 percent), which reversed from declines noted in 2017, due in part to the broad-based uptick in prices following the 4.5 percentage point rise in the VAT rate to 12.0 percent,” the report noted.
“In addition, inflation rates also firmed for transportation and healthcare. Accretions to average costs slowed for housing, water, gas and electricity — the largest category — by 83 basis points to 2.4 percent, while average prices for clothing & footwear, furnishing & household equipment and education declined, in offset to gains a year earlier.”
Despite this rise in the cost of goods and services, the Central Bank forecast continued strengthening in the domestic economy, due in part to the uptick in seasonal tourism and the benefits of The Bahamas hosting several international sporting events.
“Against this backdrop, labor market conditions are expected to continue to gradually improve over the near-term, while domestic inflation is likely to increase modestly, given the upward adjustment in prices following the hike in the VAT rate in July and the prior period’s rise in international oil prices,” the report noted.
As for the month of October, the Central Bank noted the continued gains within the tourism sector.
“In particular, preliminary data from the Ministry of Tourism for the first nine months of 2018 showed a 7.4 percent expansion in stopover visitor arrivals, compared to a 6.8 percent decrease in the same period of 2017,” it said.
“A breakdown by island revealed that the most significant gains occurred in New Providence, by 13.7 percent relative to a falloff of 4.3 percent in the prior year, reflecting in part increased visitor volumes following the completion of the phased opening of the Baha Mar development.
“Despite the ongoing challenges in room capacity after the closure of several hotels due to hurricane damage, stopover visitors to Grand Bahama firmed by 3.5 percent on a year-to-date basis, a reversal from the prior period’s 39.5 percent plunge. In contrast, visitors to the Family Islands, which firmed by 11.6 percent in 2017, contracted by 6.9 percent over the nine-month period.”