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Volume
14, Number 1 |
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Also
in this section: With
the new year comes more inflation
by Eric Jackson The 19 cents per hour rise in the minimum wage recently agreed to by negotiators for management and management-controlled company unions and ratified by President Torrijos didn't even cover inflation that had already taken place since the last adjustment, and with the new year another severe round of inflation has swept across Panama. How much this will be remains to be seen. The government measures the cost of living by the "canasta basica," or price of a selection of basic household staples. It's a method that's criticized by some economists and has in the past been manipulated by moves like the Moscoso administration's changing of the items in the mix to understate inflation in her time, but nevertheless a reasonable benchmark. It will be a month or two before the New Year price increases are reflected in the canasta basica. Coinciding with price increases here, we saw oil top $100 a barrel on international spot markets, and fuel prices are a major driver of inflation in Panama. As it affects the current round of local inflation, however, the ubiquitous rise in overhead expenses is for electricity, with rates having gone up between 11 and 16 percent as of January 1. Another similar raise is scheduled for July. The smallest residential consumers of electricity will not see the increase in their utility bills --- the government is subsidizing that, so their increase will be added to the national debt. Due to one of the rainiest years on record in 2007, the reservoirs are full and there is plenty of hydroelectric power to serve Panama's needs, yet the Torrijos administration's formula for granting electricity rate hikes --- essentially written for the government by the power companies --- is based on the price of oil. The argument that government and industry make is that at peak usage hours there is a need for oil-generated electricity, and thus the cost of that, rather than the cost of the great majority of electricity produced and sold, must be the basis of the electric rates. There is no shortage of electricity so the price hike is not supply-and-demand driven, but nevertheless President Torrijos has promised that after he leaves office the connection with the Colombian power grid will be made and thus supplies will be assured and thus electricity rates will go down. The Panamanian industrialists' syndicate (SIP) has announced, unsurprisingly, that its members will pass on its increased power costs to their customers. For most people the higher electricity rates are first and most dramatically seen in higher food prices, supermarkets being energy-intensive businesses due to refrigeration and, in the larger ones, air conditioning. The electricity-driven inflation is aggravated at the moment by the decision of a number of businesses to adjust their prices for both the January and July rate increases in a single January price hike. Meanwhile, partly as a global function of China's building boom and partly because of our fast local construction business, the prices of building materials are up in general and the price of cement has gone from $5 to $7 per bag since December. The upper end of Panama's construction boom is priced by a now somewhat deflating speculative bubble and by big injections of foreign drug money, so is less affected by the costs of production. However, there is a big shortage of housing for working and middle class Panamanians and regardless of this country's growing or diminishing attractions for foreign retirees there is and will be a lot of residential construction for this sector. Thus the Panamanian Chamber of Construction (CAPAC) has announced that due to higher costs for materials new housing prices will go up by five percent. This number ought to hold for the vast new residential neighborhoods one sees driving along the Chorrera - Arraijan Autopista and elsewhere. Also kicking into the inflationary spiral is an increase in employer contributions and employee payroll deductions, effective January 1. We have seen this coming since the agreement in late 2005 talks between the PRD government and its supporters on Seguro Social reforms. There probably won't be any relief this year. Electric bills will be going up again in July, for starters. If a desperate Bush administration tries to rally US voters to the Republican cause by attacking an oil-producing country such as Iran or Venezuela there would be a spike in world oil prices above current high levels, but in any case petroleum prices are likely to remain high throughout the year. And then there is the legacy of the 39-day doctors' strike, by which physicians in Panama's public health care sector won a pay raise of 26.5 percent --- it was the first public-sector strike that the Torrijos administration couldn't defeat and we shall see if it was the leading edge of a wave of labor unrest that raises pay in other sectors. The bottom line is that Panama is and will be more costly in 2008. Also
in this section: Editorial
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2008 by Eric Jackson
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