Inflation is expected to rise in the coming months due to higher global fuel prices linked to the Middle East conflict, with increasing fuel, food, kava, transport and electricity costs already pushing Fiji’s inflation rate up in April.
Reserve Bank of Fiji Governor Ariff Ali says inflation is expected to continue to rise in the near term, mainly due to external factors beyond Fiji’s control, particularly higher global fuel prices linked to the ongoing conflict in the Middle East.
He says this pressure is already feeding into domestic prices including transport and electricity costs.
Ali says recent data shows that headline inflation rose to 1.8 percent in April, after more than a year of deflation, largely driven by higher prices for fuel, food and kava.
He explains similarly, core inflation, which excludes the prices of volatile items (food and energy), increased to 1.7 percent mostly driven by higher kava prices.
Ali says the extent of this price pressure will depend on how long the conflict lasts and how severe it becomes.
The RBF Governor confirms economic activity continues to be supported by inflow of remittances and tourism activity, although there are early signs that overall economic growth is beginning to moderate.
He says at the same time, foreign reserves, as of 28th May, stand at around $3.4 billion, sufficient to cover 4.9 months of retained imports and are expected to remain adequate in the near to medium term, supported in part by more moderate import demand as economic activity slows.
Despite these challenges, the Governor emphasised that the financial system remains supportive, with ample liquidity ($1.6 billion as of 27th May) and continued growth in private sector lending.
He says financial stability remains intact with the banking system adequately capitalised to withstand temporary global and domestic shocks.
Ali says that, taken together, these conditions support maintaining the current monetary policy stance, which is expected to continue to provide stability to the economy.
RBF warns that inflation could rise further if global fuel prices stay high, while tighter financial conditions in key tourism markets may weigh on travel demand and reduce foreign exchange earnings.
Ali says domestically, inflation is also expected to rise further in 2026 following the recent increase of 5.91 cents per unit in electricity tariffs by Energy Fiji Limited, which will raise operating costs for businesses and households.
The direct impact of the EFL surcharge and the fuel price increase in May is estimated to add around 0.5 percentage points and 0.9 percentage points, respectively to overall inflation.
He says regarding foreign reserves, a sustained period of elevated global oil prices and ongoing geopolitical tensions would increase fuel and freight costs, widen the trade deficit and exert downward pressure on reserves.
However, Ali says the Government’s expected offshore loan drawdown in the later part of the year will cushion it.
Meanwhile, RBF has kept the Overnight Policy Rate at 0.25 percent as it looks to balance rising inflation pressures with supporting economic growth.
The Reserve Bank adds they are closely monitoring developments and will take necessary actions if required, to safeguard macroeconomic stability, consistent with its mandate.
