Fijian households and businesses are facing a severe cost-of-living squeeze as headline inflation skyrocketed to 6.1 per cent in June, up from 3.9 per cent in May this year.
This increase also marks a significant shift from the -1.2 per cent recorded in the same period last year.
According to the Reserve Bank of Fiji (RBF), this price increase was largely driven by higher fuel and gas prices, alongside higher electricity costs as the impact of Energy Fiji Limited’s (EFL) fuel surcharge took effect.
RBF Governor Ariff Ali said together, those factors directly accounted for approximately 4.5 percentage points of the inflation rate recorded in the month under review.
He said renewed conflict between the United States and Iran led to a sharp increase in global oil prices, with Brent crude oil rising slightly above $US100 per barrel (on July 23) before easing to around $US84 per barrel by July 29.
However, he said prices remained elevated compared with end-June levels.
“As an importer of fuel, Fiji remains vulnerable to such external developments, which could place further upward pressure on domestic fuel prices, transportation costs and broader production expenses,” Mr Ali said in a statement.
“If current oil prices persist, inflation is expected to remain above 6.0 per cent through the end of the year.”
At the same time, foreign reserves remained adequate at around $3.9 billion as of July 30; and sufficient to cover 5.4 months of retained imports.
Mr Ali said foreign reserves were expected to remain at comfortable levels over the medium term, supported in part by planned Government loan drawdowns.
He said while domestic activity continued to be supported by the tourism sector, developments in other sectors indicated some moderation in growth momentum, with softer outcomes recorded in timber, gold doré, cane production and manufacturing.
“On the demand side, consumption activity has shown signs of easing despite support from higher household incomes and strong remittance inflows.
“In contrast, investment activity has remained resilient, supported by higher new investment lending and increased imports of construction-related materials.”
However, Mr Ali said supply side constraints, including higher fuel and freight costs, labour shortages, and election year uncertainty could weigh on investment prospects going forward.
Financial conditions, he said remained accommodative, supported by ample liquidity of $2.0b as of July 29, which had helped keep lending rates low.
He said that had continued to support borrowing by households and businesses and contributed to sustained growth in private sector credit.
He said the strength of the financial system provided an important buffer against temporary domestic and external shocks.
Meanwhile, the central bank board decided to maintain the overnight policy rate at 0.25 per cent following its meeting on July 30.
Mr Ali said slowing economic conditions, coupled with inflation caused by more expensive imports, support the decision to hold the overnight policy rate steady.
