With federal reports saying inflation rate cooling, how does that impact Guam's economy?

Inflation seems to be cooling, according to recent federal reports but how are households actually holding up locally? 

A New York Federal Reserve report published recently shows the three-year inflation outlook at a new low. "We've been expecting this inflation rate to begin to level off. So these early indicators from the New York Fed are that kind of positive sign that we’ve been looking for," explained UOG economics professor Dr. Roseann Jones. The monthly survey of consumer expectations indicates that respondents see inflation staying elevated over the next year, but then receding in the next couple of years after that.

Dr. Jones continued, "There's some really interesting things there about what households are expecting line by line different products and commodities. Gas prices – they’re expecting them to come down a little bit. They’re expecting that maybe they won’t be able to make their debt payments as well as they did."

The U.S. Consumer Price Index reading for July also indicates the annual inflation rate slowing to 2.9%, the lowest since March 2021. National reports say U.S. economists are growing confident the Federal Reserve may finally cut interest rates as soon as next month. 

But what does this mean locally? "It’s not a great match directly with the Guam community," Jones forecasted. "But we look at that as a good indicator, generally if other communities are seeing price levels are coming down a bit, then we would expect whatever our inflation rates are to come down a bit, too."

She says it’s nuanced, as Guam experiences inflation at a higher impact.  "Gas prices go up in the states, but they really go up here. Food prices go up in the states and they go up here. Because we don’t produce a lot locally so we are dependent on importing a lot of the goods that are in our marketplace," she said.

She also takes the island’s current housing shortage into account, noting, "So I would expect the expectations are that we would still have higher rates for rent in the future. But that is longer term. With the growth of housing opportunities, it may come down a bit. But it’s at a sensitive point."

The UOG dean notes Guam does not conduct its own survey of consumer expectations and Guam's CPI is currently based on a 2005 basket of goods, so it's harder to measure inflation locally and see how households are actually holding up.

"I think we can do like a similar survey here. We do some things about our consumers like our consumer household income survey but that’s very dated right now," she said.

She says work is being done by the Bureau of Statistics & Plans to get a better handle on inflation data. "We recognize that a lot of our calculations we're basing this on comes from 2005. so the basket of goods we're calculating our inflation data on is kind of dated. we don't purchase the same kinds of things we used to. So we need to get an update to that," she said.

In the meantime, while GovGuam can’t set interest rates policies, she says they can take action through smaller policies like incentivizing businesses to lower costs with tax incentives. Another way to help, she adds, is by updating cost of living allowances to retirees to reflect the rise in prices.