Although the kina continued to depreciate over 2015, inflation in Papua New Guinea has been manageable and close to the Central Bank’s projections.
In its March 2016 Monetary Policy statement, Bank of Papua New Guine Governor Loi Bakani stated that the annual headline inflation was 6.4 percent in 2015, compared to 6.6 percent in 2014.
“This outcome was mainly due to the pass-through effects of the depreciation of the kina exchange rate and the El Niño weather phenomenon, which more than offset the effects of low international food and oil prices, increased competition and cheaper imports.”
Bakani said the annual trimmed-mean and exclusion based measures for underlying inflation were 2.4 percent and 1.4 percent, respectively, in 2015.
The Bank projects annual headline inflation in 2016 to be 6.5 percent and the trimmed-mean and the exclusion-based underlying measures to be 4.5 and 4.0 percent, respectively.
Over the medium term, the Bank projects annual headline inflation to increase to 7.5 percent in 2017 and then ease to 6.0 percent in 2018.
The projections for 2016 assume a weaker outlook for the domestic economy.
The effect of the depreciation of kina is being partly offset by lower international oil prices, lower imported inflation feeding through and firms absorbing a part of the cost of depreciation due to competition.
In 2017, inflation is expected to increase in line with an anticipated gradual recovery in the global economy, National Election related expenditures, and spending associated with preparations for hosting the APEC meetings in 2018.