Jamaica’s 2016 inflation lowest in decades
Price movements as measured by the consumer index amounts to just 1.7 percent compared to the November 2015. Inflation for the fiscal year-to-date registered an increase of 2.8 percent.
The price movement in November this year, is mainly as a result of a 0.5 percent rise in Food and Non Alcoholic Beverages and a 0.7 per cent increase in Housing, Water, Electricity, Gas and Other Fuels’ division. Higher prices for vegetables and starchy foods and a rise in the cost of electricity were items that were most impactful.
Doubts cast on employment rate
The Unemployment Rate for June 2016 fell to 12.9 percent, the lowest level since it hit a post 2007 high of 15.4 percent, in June 2013. It is the first time it is breaking below the 13 per cent level that it was stuck at for years. One aspect of the data raises questions about the findings.
According to the Statistical Institute of Jamaica the government body charged with collecting and collating economic data on the country. ”There were 1,186,900 employed persons in July 2016 which was 39,400 more than the 1,147,500, recorded in July 2015. The industry group Wholesale & Retail, Repair of Motor Vehicle & Equipment had the largest gain (13,300) in employment moving from 220,200 in July 2015 to 233,500 in July 2016. For the same period the industry group Agriculture, Hunting, Forestry & Fishing had the largest decline (14,000), moving from 205,200 to 191,200. The industry group Construction had the largest increase in the number of males (10,200) and the groups Manufacturing (7,100) and Other Community, Social and Personal Service Activities (7,100) accounted for the largest increase in the number of females in the period.”
The big question is how is it possible for agriculture to have grown by a massive 38 percent, according to data from the Planning Institute of Jamaica and for there to be a major fall in employment in that category? The more likely situation is that employment grew sharply in the agricultural sector, resulting in a much greater fall in unemployment, assuming the estimate for growth in agriculture is correct.
Stocks shrug off interest rate rise
The latest issue of Treasury bill offerings saw the 182 instrument climbing 40 basis points to 6.2 percent while the 91 days T-bill rose marginally to virtually hold at 5.70 percent just a tad above the average in October.
The 28 day T-bill slipped from 5.78 percent to 5.70 percent. At the same time the main market All Jamaica Composite index continues to climb with some companies posting good increased profits.
The rise in the 192 days instrument comes against the back drop of stability in the exchange rate for November to date, very low inflation that seems headed to around than 2 percent for 2016. The change in rates also comes against the change in Bank of Jamaica policy to offer Certificate of Deposits daily to the market to bid on.
BOJ should cut inflation forecast
Inflation rate in Jamaica remains at a low level for October with the rate receding from 0.5 percent in September to 0.2 percent in the latest compilation by the Statistical Institute of Jamaica (Statin).
The rate of inflation for the calendar year-to-date was 1.1 per cent, while increase for the last twelve months to October is up 1.8 percent. The fiscal year-to-date registered an increase of 2.4 percent and is running well below the central bank’s forecast of 4.5 to 6.5 percent.
The month by month increase for 2016, should end just under 2 percent for the full year, suggesting that its time the central bank adjusts their fiscal rate target sharply down, with the price of oil under pressure and the prospect that electricity rates should decline with Jamaica Public Service switching to LNG to power their Bogue plant.
Higher prices for vegetables and starchy Foods’ with an increase of 1.6 percent and movement for the division ‘Transport’ mainly attributable to higher prices for petroleum locally impacted the overall increase in inflation. A decline in electricity rates charged to consumers helped to moderate the increase.
The continued low inflation is aided by a fall in oil prices and other commodities on the world market but most telling, is the elimination of the huge government fiscal deficit in the past. The large deficit helped to fuel high levels of inflation and severe instability in the rate of exchange for the local currency.
Business conditions surged
Business and investors’ confidence is climbing with the Bank of Jamaica perceptions of present and future business conditions survey showing strong improvements in the latest reading, done in August this year.
The All-Jamaican stock market composite index also confirms the gains in confidence as can be seen from the chart. The stock market index dipped ahead of the survey numbers and started the rebound earlier than the survey figures.
The future conditions index rose to its highest level on record to 175.7 from 153.0 in the previous survey while the index of present business conditions rose to 211.7 from the 186.8 attained in the previous survey. According to the country’s central bank “Both indices reflected increases in the proportion of respondents of the view that conditions are or will be “better.” In addition, there were decreases in the proportion of respondents indicating that conditions are or will be “worse.”
With the stock market moving from 178,203.70 points at the end of August to 185,329 points at the end of October, it is expected that perception of business conditions would have improved over the August levels as the stock market seems to mirror very well the sentiments of the business sector.
2016 T-Bill rates slow JSE gains
Rates on Treasury bill slipped in the latest issues for October with the 91 days instrument coming in at 5.7 percent, down from 5.86 percent in September and the 28 days falling to 5.78 percent a decline from 5.84 percent previously.
The 192 days Treasury bill rate inched up from 5.81 percent to 5.83 percent. The latest rate out turn, comes off changes in rates with the 192 days instrument rate at 5.75 percent February 2013, rising to hit 9.11 percent in March 2014 and been on the decline since, with a few minor hiccups along the way. The trend continues downwards with the rate of decline having slowed markedly with the Bank of Jamaica repo rate set at 5.25 percent since May.
In June, the 192 days rate climbed to 6.01 percent from a 2016 low of 5.73 percent in February, at the same time, the 91 days instrument, fell to 5.65 percent in April and moved up to 5.86 in June and September. The 28 days T-bill fell to a 2016 low of 5.37 percent in April but rose to 5.95 percent in August.
The stock market has been heavily influenced by the decline in interest rates in late 2014 to the end of 2015 has struggled since, with rates being flat in 2016 with a few cases of it having risen.
Major gains in Jamaica’s Caricom trade
Jamaica’s trade deficit with CARICOM dropped sharply or 29.7 percent to end at US$123 million at the end of the year to April 2016, for a fall of US$52 million, from US$174.5 million for the similar period in 2015.
Jamaica’s imports from CARICOM declined by 25.3 percent to US$148 million, from US$198 million for January to April 2015. Mineral Fuels fell 36.5 percent to US$72 million from US$113 million, Chemicals declined by 29.2 percent to US$8 million and Food amounted to US$46 million, a fall of US$3.5 million or 7 percent. Beverages & Tobacco imports declined by 26.2 percent to US$7.7 million and Manufactured Goods rose 14.5 percent to US$7.5 million.
Exports to the region increased by 18.3 percent or US$2 million, to US$25 million. Re-exports climbed 53.4 percent were to US$5.6 million. Domestic exports were valued at US$19.7 million, 1.2 percent less than the US$20 million recorded for January to April 2015. Lower exports of Manufactured Goods were the main contributor to this decline, due mainly to lower exports of cement related products.
Jamaican GDP doubles 2015 growth
The economy that rose by 0.8 percent in the March quarter over the similar period in 2015 is up by 1.4 percent for the second quarter of 2016, compared to the similar quarter of 2015. If the trend were to continue, growth for the full year could hit 2 percent, the fastest pace of growth since 2006 with growth of 2.9 percent. The only other time since 2004 that the economy grew close the 2016 pace is 2007 when the economy grew by 1.45 percent and 1.43 percent in 2011.
Growth in 2015 over 2014 reflected an increase of 0.4 percent in the March quarter and 0.8 percent for the second quarter.
The 2016 second quarter increase, is attributed to improved performances in the Goods Producing industries 3.3 percent and the Services industries 0.8 percent but Mining & Quarrying industry declined by 1.9 percent. Increased outputs were recorded for Agriculture, Forestry & Fishing 9.4 percent, Manufacturing 0.6 percent and Construction 1.6 percent.Major growth in the service sector came from, Electricity & Water Supply grew by 5.0 percent, Hotels & Restaurants 1.3 percent, Finance & Insurance Services 1.4 percent.
Shaw’s tax-take jumps sharply
The big increase over 2015, includes very little new taxes imposed in the budget presentation in May, this year. The increase over 2016 fiscal year annualises out at $48 billion and $60 billion when the new taxes are included. Compared to budget, revenues are running at $31 billion ahead of forecast on an annualised basis.
It means that Minister Shaw has fully funded the revenues given up by increasing the PAYE tax threshold, well ahead of the year-end and just around the time the reduced PAYE taxation takes effect to affect tax revenues with August being the first month that the reduced payment would be effected. PAYE enjoyed inflows of $1.9 billion more than planned, bringing in $29 billion to August. In 2015 for the same period, a total of $28.45 was generated from this item.
While revenues climbed sharply, expenditure so far is well below forecast by $13.8 billion. Employees’ compensation is down by $2.7 billion, interest cost shaved $2.5 billion off forecast, capital spend so far, is under spent by $7 billion and other expenses are down by $2.5 billion. The net effect higher revenues and reduced cost is a reduction of the fiscal deficit that was projected at $46.2 billion and ended at $19.5 billion, $26.7 billion less than planned. The primary surplus is running well ahead of plan with an out turn of $41.65 billion up from $17.5 billion budgeted.
Inflation set to fall below 2% for 2016
The calendar year-to-date inflation is only 0.3 percent, while the year over year movement is 1.8 percent. IC Insider is forecasting the full year inflation to end just below 1.5 percent, barring major negative developments. If the forecast is closely achieved, it would be the lowest rate in four and a half decades and will better the 3.66 percent achieved in 2015, the previous lowest rate over the same period. The rate for 2016 would be well below the 4.2 percent forecast by the IMF for the calendar year and the Bank of Jamaica the fiscal year forecast to March 2017 with a target of 4.5 percent to 6.5 percent.
According to Statin, inflation for August was driven mainly by the division ‘Housing, Water, Electricity Gas and Other Fuels’ which recorded the highest movement, 1.8 percent, primarily due to the increase in rates for electricity and water. The group ‘Food and Non-Alcoholic Beverages’ division increased by 0.4 percent and was influenced by the upward movement in the group ‘Vegetables and Starchy Foods’ up by 0.9 percent. The increases were partially offset by a fall in ‘Transport’ by 0.2 percent, due to lower petrol prices on the local market for the month of August.
The low level of inflation comes against the back ground of a 5 percent devaluation of the Jamaican dollar versus the US dollar and a tax package earlier in the year that saw an increase in the price of petroleum as well as a fiscal deficit that is close to zero and well below forecast.
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