The problems caused by Guam's rising cost of living might improve as it recovers from the pandemic
Over the last three years, Guam's cost of living has risen by just over 6%. This doesn't seem like much, but it is indicative of the rising trend of constant inflation which has plagued the country's economy in recent years. As more and more people suffer from the unlivable costs of housing and food, there have been clamoring calls on the government to enact policy which would ease this inflationary pressure.
Guam's economy is majorly bolstered by U.S. military spending – the costs of personnel stationed there and other costs related to the functioning of the military base located on the island. However, the amount of military funding allocated to Guam has declined over the last two years. The economy has been supplemented by its other major industry – tourism. Tourists, mostly from Japan, spend large amounts of money on hospitality and entertainment services as well as small businesses within the country. More than 1 million tourists visit the country annually. However, due to the pandemic, this industry has come to a grinding halt. For now, the country is attempting to make up this shortfall through transfer payments from the U.S. government (CARES Act funds and Pandemic Unemployment Assistance). However, this is not sustainable. Until Japan and Korea bounce back from the pandemic, Guam is faced with a severe lack of cash inflow.
But what does this have to do with the rising cost of living? As the pandemic has hit and industries have slowed down, the inflation rate has fallen slightly. However, the larger increase in living prices have caused acute problems for Guamanians. Over the last seven years, housing prices have increased by 65%. Utility bills, cost of food, and fuel prices have also increased by around the same percentage over this period. Since tourism and military spending in Guam have faced slowdowns over the last two years, people's incomes are falling and many are losing their jobs. In fact, the unemployment rate in Guam was measured at 19.4% in December 2020 – the highest ever recorded. Although this fall in demand for Guam's industries has also slowed the rise in inflation rate, prices are still increasing (just slower). Most citizens are stretched thin, trying to keep up with the high costs of living while earning less than before. Even exports (the major one being fish and fish products) are less competitive with the higher inflation rate, causing an insidious problem for the citizens of the country who produce for an overseas market.
Kevin Gianan
What is causing the constant increase in prices in Guam that has been happening for the last 15 years? Generally, inflation can be caused if an economy's production capacity is too low to meet rising demand (demand-pull inflation) or if the supply of services and goods in the economy is reduced somehow (such as due to an increase in raw material costs, shortage of labor, etc. – this is called cost-push inflation). Guam faces a combination of these issues. Increasing the minimum wage has also affected inflation, as prices increased in response to this. Unfortunately, the minimum wage was not adjusted again in response to these prices, causing unlivable financial conditions for many Guamanians.
As the country's economy reeled from the stoppage in tourism earnings due to the pandemic, the government established a recovery task force for the purposes of keeping the population healthy and avoiding loss of lives during the health emergency. It also focused on economic recovery during the crisis, such as three rounds of stimulus checks to support the population. The crisis of the constantly increasing cost of living is ever-present as before but conquerable still. Inflation rates are bound to fall and deflationary growth is slated to occur as the tourist industry continues to face a lack of customers and lower earnings during this period. Although recovery from the pandemic is a slow and grueling process which may not fully occur until the rest of the Pacific islands have recovered as well, the problem of the rising cost of living is pressing and now solvable.
So, what can help to reduce the cost of living and aid in economic recovery? Tax breaks for all, subsidies, and stimulus payments can help ease the burden on the average Guamanian. However, this would not aid in solving the inflationary issue. Monetary changes such as increasing interest rates would help in this regard, but could damper growth during this vulnerable period. The government must achieve a tricky balance between two overlapping issues. Nevertheless, the deflation occurring during this time offers an opportunity to address the problem at its root. By enacting policies to address the specific causes of inflation in Guam, the state might finally have a cost of living which is affordable for all.
Kevin Gianan is a resident of Tamuning.
