On September 8th 2010, the Honorable Winston Dookeran, the Minister of Finance for Trinidad and Tobago presented the Budget Statement for 2010/2011 fiscal year. The budget gave a comprehensive summary of the financial plan of the government, giving details of its expected levels of revenues as well as expenditure for the 2010/2011 fiscal year. Of the many areas of concern raised in the Budget by the Minister of Finance, inflation and government expenditure take precedence in this analysis.

Due to the high levels of inflation in Trinidad and Tobago, the paper seeks to address the impact that various monetary and fiscal policies proposed by the government in the 2010/2011 Budget Statement have on inflation. The positive and negative effects of monetary and fiscal policies on inflation will be examined. Further, the paper will also examine the areas of government spending for the fiscal year 2010/2011 with the aim of identifying changes in expenditures patterns of the government and justifying reason for expenditure in certain sectors in this tough global economic climate. Time series data was utilized in order to determine trends and determine major changes in government expenditure.

Suggestions were also made in an effort to identify certain plans that the government should consider and policies that it should monitor based on its current policies which it intends to undertake.

The problem of inflation is one which plagues most developing countries as well as developed countries in recent times. Inflation is characterized by increases in the overall prices levels in a country over a period of time. In recent time headline inflation in Trinidad and Tobago has been influenced primarily by surging food prices while core inflation has remained relatively stable. Headline inflation measures the extent of changes in the prices level of all goods and services within an economy whereas core inflation can be defined as headline inflation minus other volatile components such as food prices. Based on the Central Bank of Trinidad & Tobago Annual Economic Survey for 2009, changes in headline inflation from 2005 to 2009 was primarily due to changes in food prices, during which core inflation was relatively stable. This postulates that changes in the overall inflation rate which is referred to as headline inflation was due mainly to changes in food prices during which core inflation remained relatively constant. Further, the Summary of Economic Indicators June 2010 by the Central Bank of Trinidad & Tobago has summarized that headline inflation rose to 13.7 percent from June 2009 to June 2010 primarily due to food inflation which increased to 31.1 percent during this same period, while core inflation remained constant during the year at 4.3 percent.

The Trinidad and Tobago 2010/2001 Budget Statement estimates were made based on an average inflation rate of seven percent. This figure can be identified as the Government forecast for inflation for the fiscal year. The budget statement identified inflation as a concern with particular emphasis being placed on food price inflation. Inflation reduces customers’ purchasing power and thus it becomes more difficult for people to acquire basic goods and services. Therefore, it becomes imperative for Government of Trinidad and Tobago to put measure in place to reduce inflation and also to ensure that policies implemented to promote various sectors within the economy have little or no inflationary effects.

In the budget statement, the government prop