Running head: INFLATION IN FIJI

Inflation in Fiji

Name: Ashna Achal Prasad

Student ID: S11126465
Mode of Study: Blended mode

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 INFLATION IN FIJI

Fiji is one of the most developed nations of the island economies of the Pacific.The
Gross Domestic Product of Fiji was around 5.06 billion US dollars in 2017. This place also
has large mineral and forest resources. After the military coup there was an increase in the
rate of inflation in Fiji. As a result of political instability the economic performance has also
started to decline. More than forty five percent of the population lives under the poverty line
of Fiji. The economy has also remained weak for quite a few years in Fiji. There had been
political and economic uncertainties due to the fragile domestic investments. The economy of
Fiji also heavily depends on the sugar industry, tourism and remittances (Gottschalk et al.,
2016). However, frequent attacks of natural calamities causes a widespread damage which is
also related to inflation. Although, the inflation has both positive and negative effects on the
nation.
The rate of inflation in Fiji has increased to 4.7 percent in 2018 compared to the
previous year. Between the year 2013 to 2018, the inflation rate of Fiji had been the lowest in
the year 2014 which was only 0.54%. According to the data collected from World Bank it has
also been seen that that the rate of inflation in 2015 was 1.37% and it rises slightly after that
on 2016 at 3.87% (Fiji Inflation Rate | 2003-2018 | Data | Chart | Calendar | Forecast |, 2018).
Fiji had experienced the lowest levels of inflation in the year 2014. The rate of inflation of
Fiji tended to increase in the year 2017. The inflation rate was quite high in both the years of
2016 and 2017. When there is overall increase in the prices of goods in the economy it results
to inflation. However, inflation is both good and bad for the economy depending upon the
rate. A little inflation is always good for the economy although too much inflation is not too
healthy for the nation. Inflation can also reduce the purchasing power of people along with
making the exports of the country expensive. Therefore, it is very important to keep the rate
of inflation at an acceptable level so that it does not hamper the business and investments.
There are a lot of reasons behind the high rate of inflation in Fiji. One of the major factors
behind the high rate of inflation is that as Fiji is a developing nation most of the goods and
services are not produced domestically and they are purchased from the global market
resulting in costly imports when the global prices goes up (Paul, Tang & Bhatt, 2014. Price of
various goods and services also plays a major role in determining the rate of inflation.
Therefore, when the demand is high compared to the supply prices tend to rise up leading to
inflation. The foreign exchange rate also affects the rate of inflation.
The import of Fiji generally becomes expensive when then Fiji dollar becomes weak
compared to the other foreign currencies. This will also make the consumers pay more for
the imported goods. The inflation of Fiji therefore will also affect the inflation of the other
foreign countries whose currencies are attached to the Fiji dollar. Frequent attacks of natural
disasters are also a reason behind inflation. Life threatening natural disasters of Fiji which
includes earthquakes, floods, cyclones and tsunamis tends to increase the prices of goods in
the market leading to inflation (Paul, Tang & Bhatt, 2014). On top of that significant damages
of the infrastructure of the economy will also impact the prices of goods. Due to the natural
disasters there is also a huge disruption in the domestic supply of goods which also tends to
increase the price of goods. Inflation can also takes place in a situation where the productivity
of a nation does not rise as much compared to the rise in wages and salaries. In such situation
firms usually try pass the added cost to the customers where they are forced to pay high
prices. When the exchange rate of the currency falls down it also results to cost push
inflation. Therefore, when the exchange rate of the Fiji dollar falls down compared to the
foreign exchange it results in inflation.
Presence of government intervention and taxation also reduces supply of goods
compared to the high demand which may result in inflation. The monetary policy of Reserve

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 INFLATION IN FIJI

Bank of Fiji tries to keep the inflation as low and stable as possible. Although it does not have
a target rate of inflation compared to other countries, however it tries to keep the rate of
inflation around 3% (Inflation, consumer prices (annual %) | Data, 2018). The Reserve Bank
of Fiji also makes sure that the foreign reserves are maintained at a sufficient level in order to
control inflation in the economy. It conducts a monetary policy by reviewing the foreign
exchange reserves at the end of every month. It will also try to increase the rate of interest so
that the demand for different goods and services goes down when there is an expectation of
the inflation to rise sharply (Gottschalk et al., 2016). However, the bank does not have full
control on the rate of inflation because other factors like natural disasters and international
market impacts the prices of different goods and services.
As a high amount of Fijian inflation tends to be imported, the economy of Fiji is
mainly affected by the adverse price developments of the international countries. Food and
non-alcoholic beverages in Fiji are the important part of the consumer price index. Its main
imports are the petroleum products, chemicals and food. Drought and cyclone are the major
natural disasters along with the earthquake are one of the main reasons behind the inflation.
However, fuji has remained one of the most progressive nations in the Pacific island
economies. The Reserve Bank of Fiji has taken monetary policies in order to control
inflation. Therefore, in order to conclude it can be said be said that stable along with a low
level of inflation is not at all harmful for the economy as it will allow people to invest more
and also will increase productivity. A sustainable economic growth can also be attained by a
constant and a low-level inflation.

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 INFLATION IN FIJI

REFERENCE LIST
Fiji Inflation Rate | 2003-2018 | Data | Chart | Calendar | Forecast |. (2018). Fiji Inflation Rate
| 2003-2018 | Data | Chart | Calendar | Forecast | News. Retrieved from
https://tradingeconomics.com/fiji/inflation-cpi
Gottschalk, J., Miller, C., Rauqeuqe, L., Wainiqolo, I., & Yang, Y. (2016). The Real Exchange
Rate: Assessment and Trade Impact in the Context of Fiji and Samoa. International
Monetary Fund.
Inflation, consumer prices (annual %) | Data. (2018). Inflation, consumer prices (annual %) |
Data. Retrieved from https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?
locations=FJ&view =chart
Paul, T. M., Tang, Y. P., & Bhatt, M. (2014). A Study of the Pass-through effects of Exchange
rates and International Prices shocks on Inflation in the Fiji Islands. Journal of
Business, 1(1), 1-10.

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