Businesses should continue to focus attention on improving, branding, investing in research and development, and promote innovation. Businesses should increase efficiency of resource usage by reducing waste. Waste add to cost of production of goods and services. For instance, post harvest losses in perishable agricultural products is estimated to be around 30%-40% which has been repeatedly articulated by CBSL in its past annual reports. Businesses should also attempt to shift from the traditional methods of employing labour and capital towards IT-based new technologies. In addition, knowledge based product markets should be developed to attract business and knowledge processing centres. Such activities would not only bring in additional sources of foreign exchange, but will also move production processes towards high tech methods. 6. Households and the general public  Misconceptions about the term inflation Inflation is interpreted in various ways by various circles. The price tags on products and services in shops, supermarkets and service centres is not the inflation but it is the rate of increase in prices. In other words, it refers to a continuous growth in general price levels in the economy. Households and the general public should also recognize that short term shocks like droughts, floods and landslides could temporary raise the prices of basic food items but it will stabilize when situation is back to normal. The high prices at a given point in time should not be construed as inflation and they need not build-up inflationary expectations.
Otherwise you might rationally expect to end up among the small minority that does not expand and at the same time still have the tighter monetary policy that results from everyone else expanding. This is the classic “prisoner’s dilemma” from game theory. The conclusion is that it is necessary to have rules for fiscal policy that limit deficits and debt when monetary policy is united and fiscal policy divided, and that these rules need to be followed in a credible fashion. But, in addition, the conclusion is also that the temptation to over-expand is as strong during an upturn as during a downturn. In fact this is what we have seen in the euro area during the heyday of the late 1990s and the beginning of the 21st century – a much too expansionary fiscal stance in some euro area countries, especially in good times, which led to tighter monetary policy by the ECB and thus an incentive for others to further weaken fiscal discipline. When the downturn eventually came, the euro area entered this phase with large deficits instead of surpluses. What the Pact then required, a 180-degree turnaround in fiscal policy to a tighter stance, reinforced the downturn and was considered by some as stupid. In fact it was the lack of savings  BIS Review 88/2006  1  during the boom that was stupid. Thus, rules would be needed not only for a maximum deficit in a downturn, but equally some forceful rule for fiscal rectitude in good times.