The call has been made by the Opposition and others for the doubling of the pension for senior citizens, a substantial increase in public service salaries of 20 percent and a reduction of VAT, in addition to the income tax threshold which has been increased. These are commendable sentiments and should attract the support of everyone. Unfortunately the full facts about the negative impact of such large increases are not and have never been placed before the same sections of the community for whose benefit the increases are demanded. Increases of the magnitude demanded, especially if the salary increase is not backed by an increase in productivity, would be inflationary and would harm most the groups who the increases are intended to benefit.

Inflation is the measure of the general rise in the prices for goods and services over a period of time. It is caused by an increase in the money supply among other factors. The increases being sought by the Opposition, if granted, would substantially increase the money supply in the economy. The rate of inflation would increase significantly. The end result would be that the initial positive effect of increases in pensions and salaries would be eliminated by the subsequent higher cost of living caused by increased inflation. This would naturally lead to demands for even higher increases thereby leading to a vicious inflationary cycle.

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