Trinidad and Tobago's inflation rate is continuing to rise.

In a release yesterday, the Central Bank announced that headline inflation in May increased to 12.6 per cent, up from 11.8 per cent in April. However, when measured on a monthly basis, the rate of increase in the overall price level for May was 0.3 per cent, compared to a 2.8 per cent increase in April.

Food inflation remained the main driver of headline inflation, accelerating to 28.3 per cent in May, up from 26.1 per cent in April. The high food inflation primarily reflected movements in retail prices of fruits and vegetables. Year-on-year, fruits and vegetable prices rose by 41.4 per cent and 45.2 per cent, respectively, in May, compared to 48 per cent and 34.3 per cent in April. Meat recorded higher prices as well (6.1 per cent in May, over 4.1 per cent in April), although there was some deceleration in the rate of increase for several items including bread and cereals; milk; cheese; eggs; fish; and oils and fats.

Core inflation (excluding the effect of food prices) was 2.2 per cent, the same rate as April. Health inflation increased 1.7 per cent, while clothes and shoes increased 2.7 per cent. The Bank said latest data pointed to some slowdown in the rate of growth in private sector credit, at 1.3 per cent in May, compared to 3.1 per cent in April. Business credit continued to expand, albeit at a marginally slower rate, growing by 4.5 per cent in April compared with 4.8 in March. Real estate mortgage lending remained strong, increasing by 10.4 per cent in April.

Excess liquidity in the financial system contracted for the third consecutive month to June 2012 ($175 million net fiscal injections in May and $1.4 billion in June) with Central Bank operations removing $1.8 billion from the financial system, keeping excess liquidity in check.

"Although the rise in headline inflation is a cause for concern, it has largely reflected increases in food prices. Available data suggest that underlying demand pressures remain relatively contained for the time being. In the current economic climate, there is still room for further expansion in private sector credit to support an economic recovery," the release said. Against this background, the Bank said it has decided to maintain the "Repo" rate at three per cent.