Speculation fuels Panama inflation

Speculation has been a prime contributor.

Seven weeks before the beginning of 2009, analysts from the government and private sector are saying that the year will close with a sluggish economy and a record inflation level of 10 percent.

A reality that some do not qualify as grim, bearing in mind the international financial crisis, but it has caused concern in the government and the private sector.

The problem is the continuous dramatic increase in the price of goods and services plus the high cost of the oil that has pushed up the prices of the basic food basket, electricity and transport among others.

Matters have become worse over the last few months and the government has introduced measures to keep fuel prices down.

The financial advisor of the Economy and Finance Ministry, Horacio Estribi said that according to the government’s forecast an inflationary closure of 10 percent is expected, but inflation could fall to 4.8 percent due to the decline in the price of oil and the contraction of the global economy.

Ernesto Bazán, from the risk assessment company Equilibrium had already said that this was expected considering that historically the country has maintained and inflation between the 2 and 4 percent.

Felipe Chapman of Indesa recognizes that inflation is the Achilles heel of the Panamanian economy, because it put the brakes on the stability and expansion of the country and this situation was noticeable last August when inflation reached 9.8 percent due to the increases in electricity rates and food prices.

But Panama is not alone. Inflation is going crazy all over Latin America, because apart from the price of oil, there have been increases in the prices of raw materials due to the demand of Asian countries with rapid economic growth and the expansion in the industry of bio fuels.

A few months back the International Monetary Fund IMF pointed out the inflation was the principal problem faced by the Panamanian economy and advised the government to cut spending to obtain a tax surplus higher than the one expected for this year.