Inflation is the general increase in prices of goods and services. As prices go up, the same amount of money buys fewer goods and services. The rate at which money loses its value depends on the rate of inflation. According to the International Monetary Fund, there are three levels of inflation: low-to-moderate, galloping and hyperinflation.
Low-to- moderate inflation is when the prices of goods and services rise slowly over time. As a result, people are more willing to save their money because the value of their savings is not eroded by high inflation. At the same time, businesses prefer to enter into long-term contracts because they do not expect prices to rise quickly in the future.
Fiji experiences low-to-moderate inflation. (See graph). Since around 60 percent of goods and services are imported, our domestic prices are affected directly or indirectly through changes in the prices of our imports. Fiji’s low inflation environment is supported by two factors. First, our fixed exchange rate arrangement helps keep the value of our currency stable. Second, our major trading partners have been very successful in keeping their inflation low.