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`bkqo^i=_^kh=lc==qofkfa^a=C=ql_^dl=POST OFFICE BOX 1250 PORT-OF-SPAIN, TRINIDAD, WEST INDIESTELE: 625-4835, FAX: (868) 623-1955E-Mail Address:info@central-bank.org.tt

MediaRelease

INFLATION SLOWS TO 12.5 PER CENT: CENTRAL BANK

LOWERS REPO RATE TO 3.25 PER CENT

RecentdatareleasedbytheCentralStatisticalOfficeindicatethatheadlineinflation

measuredbythe12monthincreaseintheIndexofRetailPricesslowedto12.5percentin

January2011 from13.4percent inDecember2010. Core inflation,whichhadremained

virtuallyunchangedforthepastseveralmonths,declinedto2.6percent(yearonyear)in

Januaryfrom4.7percentinthepreviousmonth.

Onayearonyearbasis,foodpricesincreasedby30.9percentinJanuary,slightlyup

from

29.5

per

cent

in

December.

The

rise

in

food

prices

was

led

mainly

by

vegetables

(51.0

per cent) andmeat (10.2 per cent). Within the vegetables subindex, significant price

increaseswererecordedfortomatoes(92.6percent),greenpigeonpeas(103.0percent),

christophene (106.9per cent) andochroes (77.0 per cent). The rateofprice increases

however slowed for fruits (26.3 per cent in January compared with 32.4 per cent in

December)andfish(7.2percentinJanuarycomparedwith7.9percent).

The slower rate of increase in core inflation reflected movements in the

transportationsubindex, largelydue to technical factors. Therewasasurge in thissub

indexinJanuary2010followingtheinclusionofcumulativeincreases(betweenJanuaryand

December2009)inthepricesoffuelsandlubricants. Thiselevatedlevel,whichformsthe

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basefortheyearonyearcomparison,nowgivesrisetoasignificantlyslowerannualrateof

increaseinthetransportationsubindexinJanuary2011(1.9percent)comparedwiththe

average of 11.3 per cent throughout 2010. Besides this base effect, therewere also

slowerprice increases inothernonfoodcategories includingHealthandFurnishingsand

HouseholdEquipment.

Underlyingdemandpressures continue tobe fairly subdued as reflectedby credit

developments. In the twelve months to December 2010, private sector credit by the

consolidated financial system contracted by 2.3 per cent led by business credit,which

declinedforthefourteenthconsecutivemonthby7.2percent. Informationatamoredis

aggregatedlevelrevealsthattherewasadeclineinlendingtoallthemajorbusinesssectors

includingmanufacturing(0.4percent),construction(8.9percent)anddistribution(11.4

percent). It shouldbenotedhowever that consumer credithasbegun to recoverand,

after monthly increases of just above 1.0 per cent in the past two months, has

strengthenedsignificantlyinDecember2010,risingto4.2percent.

Net fiscal injections, themajor sourceofdomestic liquidity,havebeen somewhat

lower

for

the

first

five

months

of

the

fiscal

year

and,

combined

with

the

liquidity

absorption

measuresundertakenbytheCentralBank,haveservedtoreduceexcessliquidity. Forthe

monthofFebruarythusfar,commercialbanksreservebalancesheldattheCentralBankin

excess of the statutory limit averaged $1.4 billion daily compared with $2 billion in

December2010.

In the somewhat tighter liquidity environment, the threemonth treasury bill has

inchedupoverthepastfewmonthsfromitshistoriclowof0.28percentinOctober2010

to0.47percentinFebruary2011.

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Inflationrisksarelikelytoremainontheupsideinthecomingmonthsfollowingthe

sharp increases intheglobalpricesofsomekeyfoodstaplessuchaswheat,maize,sugar

andedibleoils. Severalof theseprice increaseshavenotyetbegun to impactdomestic

foodprices. Inaddition,thereare indicationsthatprivatedemandhasbeguntopickup.

TheBankwillkeepaclosewatchon theevolutionof the creditand liquidityaggregates

whichhaveimplicationsforaggregatedemandandcoreinflation.

Meanwhilewiththerecoveryofthenonenergysectoractivityremaininganurgent

priority,theBankhasdecidedtoreducetheReporateby25basispointsto3.25percent.

TheBankwillcontinuetokeepeconomicandmonetaryconditionsunderclosereview.

ThenextReporateannouncementisscheduledforMarch25,2011.

February25,2011.

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APPENDIX

MOVEMENT OF SELECTED CATEGORIES OF THE INDEX OF RETAIL PRICES

/Percentage Change/

Monthly Year-on-Year

December2010

January2011

December2010

January2011

Headline Inflation0.5 1.1 13.4 12.5Food Prices 1.3 2.4 29.5 30.9

Bread and Cereals 0.5 0.2 (0.7) (0.4)

Meat 4.5 0.0 9.4 10.2

Fish 2.1 2.6 7.9 7.2

Vegetables 0.3 4.3 42.5 51.0

Fruits 1.6 6.6 32.4 26.3

Milk, Cheese & Eggs 1.5 0.0 11.3 11.3

Oils and Fats (1.1) 0.0 (2.8) (3.1)

Sugar, Jam, Confectionery,

etc.0.2 0.4 4.1 3.9

Core Inflation (0.1) 0.2 4.7 2.6

Alcoholic Beverages &Tobacco

0.1 0.3 6.0 6.2

Clothing and Footwear (0.8) 0.5 (1.5) (1.7)

Furnishings, HouseholdEquipment and RoutineMaintenance

0.0 0.0 1.0 0.6

Health 0.0 0.1 3.8 3.7

Of which: MedicalServices 0.0 0.0 6.0 5.7

Housing, Water,Electricity, Gas & OtherFuels

0.0 0.4 0.2 0.7

Of which: Rent 0.0 3.1 7.0 5.9

HomeOwnership

0.0 0.1 (0.8) 0.1

Education 0.0 0.0 1.9 1.9

Recreation & Culture 0.0 0.0 13.7 14.0

Hotels, Cafes &Restaurants 0.0 0.1 0.8 0.4

Transport 0.0 0.0 12.1 1.9Source: Central Statistical Office.