Cost of living warning as fuel and food prices climb

Fiji's economic outlook is characterized by fragility, primarily driven by persistent global energy uncertainty and its direct impact on domestic inflation, according to the Reserve Bank of Fiji's (RBF) May Economic Review. Rising global fuel prices, influenced by ongoing tensions between the United States and Iran, have kept oil prices elevated, contributing to a significant increase in Fiji's cost of living.

Annual inflation in Fiji turned positive at 1.8 percent last month, reversing a long period of deflation. This shift is largely attributed to higher costs for fuel, food, and transport. The RBF further warns that recent hikes in electricity tariffs and fuel prices could exert additional pressure on household budgets in the coming months. Fijians are advised to anticipate rising living costs, particularly for basic goods and services, as global food prices, including vegetable oils, meat, and cereals, continue to climb. Elevated kava prices and imported food costs are also straining household finances.

Another significant risk highlighted is the weakening of household spending power. Consumption lending has declined, and retail growth forecasts for 2026 have been revised downward. The RBF projects that higher fuel and electricity bills will likely reduce disposable income and discretionary spending. Concerns also extend to job and income stability, with a sharp drop in job advertisements and an increase in outward migration and labor movement, indicating tighter hiring conditions and ongoing skills shortages in key sectors.

Fiji's trade deficit has widened as import growth outpaces exports, potentially pressuring foreign exchange earnings. While foreign reserves remain adequate at $3.4 billion, the RBF cautions they could face strain if global fuel and freight costs persist. Investment activity shows some strength, particularly in construction and real estate, but uncertainty surrounding energy costs and project timelines could temper future momentum. In response, the Reserve Bank has maintained its policy rate at 0.25 percent, emphasizing its commitment to closely monitoring inflation, reserves, and global developments to ensure economic stability.