Dear Editor,
Reference is made to the Alliance for Change’s (AFC) finance spokesperson’s contention that “teachers’ 10% salary increase can’t keep up with rising food inflation”. Unfortunately, the AFC’s finance spokesperson did not consider the fullness of the agreement between the Guyana Teachers’ Union (GTU) and the Ministry of Education (MoE). In so doing, a few key points escaped the AFC’s contention as adumbrated hereunder.
First and foremost, the agreement inked between the GTU and the MoE provides for (i) the revision of salary scales for specific positions; (ii) salary upgrades for non-graduate teachers, who will receive a salary upgrade to the midpoint of their salary scale after three years of continuous service, and (iii) a new revolving fund to be established to assist eligible teachers with pensionable status, with details to be finalized in collaboration with the Central Housing and Planning Authority. These are all financial benefits in addition to the across-the-board increases.
In particular, the revision in the salary scale often gets overlooked, but it is materially impactful. Case in point, it was overlooked when the government, during the 2021-2022 period effected upward adjustments to salary scales to correct anomalies in the system. These adjustments translated to, on average, a 46% increase (as high as 60% – 90% in some categories).
Secondly, in order to validate the argument that the AFC’s finance spokesperson was trying to establish, which is that inflation would erode the increases in salaries, one would have to demonstrate that real wages have been falling on account of rising inflation. This is a theoretical argument that the Opposition Leader often put forward, but he has never tested. In this regard, his economic advisor (s) have never done the analysis to determine whether that theory holds any merit.
Although this was essentially an opposition argument, whereby they should have been performing the analysis to test their theories, I have recently done this sort of analysis. In this respect, I did an analysis of the Consumer Price Index (CPI), and I’ve looked at real wages, using the inflation rate as the deflator, to determine whether real wages have been falling or not.
In the ensuing section, the result of the aforesaid analysis is re-presented for ease of reference.
The base year for the CPI is 2009 (where December 2009=100) according to the CPI data reported in the Bank of Guyana Annual Report, 2023. Thus, after accounting for the estimated inflation rate for the year 2024, the CPI will close the year with an index of 143. This means that since 2009, consumer prices have increased by 43%. Conversely, it would be interesting to note that real wages for that period, have increased by 6.5 times or 539% (2009-2024).
In absolute terms, in 2009, real wages based on income tax data, amounted to about $40 billion, which rose to $237.4 billion at the end of 2023, and is projected to reach $265 billion by the end of 2024. Further, real wages as a share of GDP averaged nearly 7% annually during the period 2009-2023/24.
Food prices have increased, on average, by 7.3% annually over the last 14 years. This outturn was largely attributed to the direct intervention by the government, inter alia, policies aimed at containing inflationary pressures.
It is crucial to note that had there been zero intervention by the government since 2020, consumer prices would have risen by at least 3-4 times higher than current levels. In other words, it would have cost the average consumer 3-4 times more for the same basket of goods in the supermarket or traditional market place.
Altogether, the estimated cost of government’s intervention to contain inflationary pressures amounts to an estimated $322 billion annually (8.5% of GDP) in direct and indirect subsidized costs for household/consumption expenditure.
Of note, this estimated value is exclusive of two key policies designed to minimize the impact of rising costs, while increasing disposable income. These are: (i) the subsidy provided to first time low-income home owners (assistance with free building materials) and (ii) the Mortgage Interest Relief policy. It can be concluded, therefore, that at the aggregate level, real wages have increased at a rate that has far outstripped rising consumer prices over the last 15 years.
Yours sincerely,
Joel Bhagwandin
