As a consequence, many families saw a decline in their incomes necessitating recourse to a range of coping strategies. The reports of the World Bank’s High Frequency Phone Monitoring Surveys of Households conducted in Papua New Guinea and Solomon Islands during the year throws further light on this.
With less to spend, consumer demand weakened. More and more people turned to, for example, growing food for their own consumption, sewing/mending their own clothes and forgoing personal activities such as going to the hairdresser, eating out, etc.
Weakening demand led to a fall in the prices of various goods and services in many PICTs. This sends a clear signal of a slowdown in the economies of PICTs.
The average change in prices of products consumed by households (a fixed basket of goods and services typically bought by households in a country) in 2020 compared to 2019 shows that of the twenty PICTs, twelve had inflation whilst eight had deflation i.e., their inflation rates fell below zero.
Of the twelve PICTs that had price increases in 2020:
- Six countries (Cook Islands, Kiribati, Niue, Northern Mariana Islands, Solomon Islands and Vanuatu) paid more for goods and services they bought in 2020 than they paid in 2019
- Five countries (Guam, Nauru, Papua New Guinea, Tokelau and Tuvalu) had disinflation.
- Palau’s inflation rate stood still as compared to 2019.
Of the eight PICTs (American Samoa, Federated States of Micronesia, Fiji, New Caledonia, French Polynesia, Samoa, Tonga and Wallis & Futuna) that experienced deflation, Fiji recorded the highest rate of deflation at 2.6% followed by Samoa at 1.6%. A peek at Fiji’s data from 1979 shows that this is the first time Fiji has experienced an annual rate of deflation.
With slowing economic activity and weakening demand the appearance of deflationary trends in post-COVID-19 in PICTs was to be expected. In 2021 unemployment will continue to be high and demand weak. Will this see more countries slipping into deflation? Time will tell.