The Weekly Report: Wage Rage

6 March 2012

The following excerpts represent a brief timeline of recent wage negotiations involving well-known local companies.

T&T Guardian – February 26th, 2012

“In the impasse at TCL, a company financially troubled since the passing of the energy-boom busy construction period, the company has offered seven per cent in the face of a union demand for a 16 per cent wage increase. Regardless of the condition of TCL, the union is moved to secure an increase no less attractive than that which it had won at Petrotrin. Predictably, nine per cent will be viewed as the new base for wage demands. Despite differences in circumstances, this is likely to apply both inside and outside of the energy sector and the public sector.”

T&T Express – March 1st, 2012

“Employees of both the National Insurance Board (NIB) and insurance firm Algico yesterday held unrelated protests outside their offices in Port of Spain to highlight wage negotiations.”

Are wages about to go through the roof?

Let me set the stage for you: low economic growth, rising inflation, low interest rates, low investor confidence (amid struggles in the local and global financial markets).

Sounds familiar right? I’m all for someone getting their fair share, but all Theory X and Theory Y considerations aside, what do these wage increases (actual or potential) mean for our economy? Inflationary pressure should be one your first responses, with the CBTT’s repo announcement (hopefully) still fresh on your minds.

T&T Guardian – February 25th, 2012

“The latest data released by the Central Statistical Office (CSO) indicate that headline inflation, measured by the 12-month increase in the Index of Retail Prices, rose to 6.8 per cent in January 2012 from 5.3 per cent in December 2011. In its report issued yesterday, the Central Bank stated that the year-on-year headline inflation rate was 2.5 per cent in January which was the highest monthly increase since June 2010.”

With commercials banks averaging over TTD 5.0bn in excess liquidity, the question “Where’s the money?” is easily answered. However, taking away the names of the companies who have protested, the issue remains the same – how will increased purchasing power benefit or harm T&T?

Rising prices make for more affordable imports and expensive exports. Sounds like a bad deal right? However, there are in fact positives to inflation which one may not have considered before. Firstly moderate levels of inflation (typically 2%-5%) are seen as necessary to facilitate some economic growth. In other words a spur in economic activity is facilitated by increased spending, whether from governments or corporations. In turn, the recipients of these funds utilise them for a number of goods and services.

The New Yorker also writes that “after the Second World War, when the U.S. was struggling beneath a huge pile of debt, higher inflation helped shrink the real national debt to manageable proportions. And, in times when people are reluctant to take risks, a little inflation can help grease the skids.

With these points in mind, how can you benefit from inflation yourself? For one thing, interest rates may rise in a contractionary response to price pressure, so your deposits, repurchase agreements and other interest bearing instruments may earn more. So while politics and union demands may cloud the minds of many, be the first (with Firstline of course!) to recognise the opportunity.

Gerard Stephens
Account Executive, Sales & Trading

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