The inflation rate in the Cook Islands has begun to ease, currently at 2.8 per cent annually, but concerns persist over the ongoing increase in prices, albeit at a slower pace.

According to the latest Consumers Price Index – June Quarter 2024 report, quarterly inflation saw a 0.2 per cent increase while annual inflation was up 2.8 per cent.

Aimata Seuta’atia Pittman, economic analyst at the Ministry of Finance and Economic Management Economic Planning Division, said in the past, they have seen the highest increases in food and beverage and transport which have previously driven overall inflation higher.

However, from June quarter 2023 to June quarter 2024, Pittman said they have seen clothing and footwear and miscellaneous goods and services with the biggest price increases at 8.5 per cent and 7.6 per cent, respectively.

The price growth in the categories of food and beverage and transport have both eased to 3.1 per cent and 2.6 per cent, respectively.

The 3.1 per cent price growth in the categories of food was influenced by several factors including mineral water, soft drinks, and juices increase at 11.82 per cent, sugar, jam, honey, chocolate, and confectionery 10.8 per cent, vegetables 7 per cent, coffee, tea, and cocoa 6.5 per cent, oils and fats 6.3 per cent, fruits 5.9 per cent, other food products: 4.7 per cent and milk, cheese, and eggs: 3.6 per cent. Transport group prices increased by 2.6 per cent, while alcohol and tobacco group rose by 2.5 per cent, according to the report.

Cook Islands Chamber of Commerce has questioned whether factors such as the rising accommodation costs and electricity prices, are reflected in the latest inflation data.

Chamber president Addrienne Hosking-Tinirau said a lack of longer-term domestic accommodation and increases in rent rates were impacting businesses that provide accommodation or accommodation allowances for their workers.

“One wonders if these increases are reflected in the latest data,” Hosking-Tinirau said.

“The continued high cost of electricity is also concerning many businesses. We understand the focus on resilience of the network, but commercially viable renewable energy options must be made a high priority, and of course, the proposed introduction of tariffs for water will be another operational expense.”

Pittman said the Cook Islands inflation rate hit its peak in December quarter 2022 at 13.9 per cent, and inflation has been easing since then.

“With the current inflation rate for June 2024 at 2.8 per cent (change in price levels from June 2023 to June 2024). However, an easing inflation rate refers to a slower pace at which prices are rising, but it does not mean that prices are falling,” she said.

“Even as inflation eases, the overall price levels of goods and services remain high or continue to increase, just at a slower rate. This distinction is important because a decrease in the inflation rate only indicates that the rate of price increases is moderating, not that prices are returning to previous lower levels. Therefore, consumers may still feel the strain of high prices, even though inflation is declining, as the cost of living remains elevated.”

Pittman said the 2.8 per cent growth in prices over the past 12 months is less than the 3.3 per cent seen in New Zealand.

She added that as the Cook Islands doesn’t have a central bank, there is no official inflation target for the country.

“This is largely because the Government does not have many levers to impact inflation, unlike a central bank – which commonly has an explicit mandate for price stability.”

However, Pittman said that a target of around 2 per cent for inflation is common among central banks, such as the Reserve Bank of New Zealand, the Reserve Bank of Australia, and the US Federal Reserve.

“A moderate inflation rate, such as 2 per cent, provides a buffer against deflation, which can lead to reduced consumer spending, lower investment, and higher real debt burdens.

“Additionally, according to the Reserve Bank of New Zealand’s 2022 paper on ‘The Optimal Level of the Inflation Target,’ a 2 per cent target helps anchor inflation expectations, promoting stability in the economy.

“A 0 per cent inflation target is not considered optimal because it eliminates this buffer, increases the risk of deflation, and can result in economic stagnation by reducing the incentive to spend and invest.”

When asked how the Government was addressing the impact of inflation on vulnerable populations, Pittman said that over the past couple of years, there have been a number initiatives to assist the most vulnerable populations.

“There have been gradual increases in the Cook Islands minimum wage, which rose by 5.5% on 1 July 2024. There have also been increases in some of the social welfare payments for our most vulnerable like the caregivers’ allowances and destitute payment.”

For addressing the potential impact of inflation on economic growth, Pittman said: “As a small open economy without a central bank, the Cook Islands has limited tools to directly control inflation, especially since it relies heavily on imports from countries like New Zealand.”

“However, supply chain improvements can help manage the impact of inflation on economic growth.”

Chamber of Commerce’s Hosking-Tinirau said there have been concerns from businesses about a continued upward pressure on the costs of goods and wages.

While many, for example, in food and beverage have lifted their prices to counter the rising costs, feedback from some tourists would suggest that prices are quite steep compared to their home countries.

“With our economy heavily influenced by what is happening in NZ, we carry more of a burden due to lower wages and this makes it extremely challenging for many,” Hosking-Tinirau added.

Hosking-Tinirau said that there are a few areas in which the Government could assist local businesses.

These include introducing some incentives by way of depreciation to stimulate investment in domestic accommodation, allow members of the Cook Islands superfund to borrow a percentage of their contributions for housing builds/purchases similar to the model in Samoa as well as subsidising domestic freight from the Pa Enua to reduce prices and reliance on imported fruit and vegetables, thus providing stimulation to the Pa Enua.

“And to assist with labour and skills shortages, add hospitality and tourism to the secondary school curriculums, and make it easier for tourists to transition to working visa for short term contracts. This will assist in filling positions in the busy season and for voids for sudden departures occur,” Hosking-Tinirau said.

“These are just a few areas that would greatly assist businesses (and consumers) and we believe would result in economic growth.”

Renowned local carver, Mike Tavioni, shared that inflation causes more than just the cost of products and goods, as it is also affecting the country’s population.

“The government is spending money for overseas travel which is about half a million but no one talk about poor health and costing referrals over million dollars. We will save our referral money if we educate our people to eat properly and produce their own food,” Tavioni said.

“So inflation is because we are dependent on imported food and that’s why some people are moving overseas because it’s getting more expensive here and they don’t know how to plant taro and survive from the plantation and the sea.”

Tavioni said that one of the easiest and most effective solutions to inflation is to teach the younger generation how to plant and produce.

He survives and relies heavily on catching local chicken to cook, his pigs and produce from his plantation.