Rising inflation will likely hit many Cook Islanders in the back pocket, but a top economic advisor says the island nation’s economy should soon experience a significant uptick.

Ministry of Finance and Economic Management (MFEM) senior macroeconomist Tristan Metcalfe spoke to an audience of about 90 people at the Edgewater Resort as part of Cook Islands Tourism’s Global Breakfast Update on Tuesday.

He said due to the Covid-19 pandemic, the Cook Islands had experienced “one of the largest economic contractions in the world”.

“We saw basically a quarter of our economy wiped out, despite the fact the Government pitched in with the wage subsidy and took on debt,” Metcalfe said.

“But we’re expecting our recovery to occur faster than initially projected.”

Metcalfe said inflation was nonetheless likely to peak early next year around 4.5 per cent.

“We know around the Cook Islands, we’re seeing prices rise substantially, fuel is a big one. In the previous five years, we had seen little to no inflation, so it’s been a bit of a shock to the system,” he said.

“One of the struggles is that we’re at the end of the supply chain. By the time it gets over here, we’re paying for it twice over.”

Metcalfe said the Government had little options to combat inflation.

“The prices are set globally, and our impact on global prices is minimal,” he said.

Metcalfe said bringing back New Zealand visitors was key, and “so far, they have been flooding back”.

“The average yield from these visitors is much higher than before,” he said.

However, Metcalfe said the Government needed to maintain its level of capital investment.

“We need to keep that work going until you guys in the private sector have the time to rebuild your balance sheets and build on investment again,” he said.

“There will come a time where the government will need to cut its cloth a little bit, but not just yet, particularly with the risk of a labour shortage.

“Capital investment is going to be key in the next couple of years. For the last two years, we appreciate the private sector has been running on empty, and that is why the Government stepped in.”

Metcalfe said labour shortages, and accessing airlines, were still a major issue.

However, he said the recent partnership between Air Rarotonga and Air Tahiti Nui was a good stepping stone for future tourism.

“That gives us a starting point to get some more connectivity into the Northern Hemisphere,” Metcalfe said.

“Longer term, we can start talking about diversification. Right now, very few businesses are in a position to take risks. We know the cost of financing is extremely high. We’ve been talking to the banks about this, but it’s going to take some time.”