Cooling inflation demands lower interest rates

Inflation cooled considerably over the past year in Jamaica, to 5.1 percent to October 2023, data just released by the Statistical Institute of Jamaica (STATIN) shows. The rate is down from 5.9 percent for the period this year to September 2023, and down from 9.9 percent for the October 2022 period.
Statin also stated that inflation for October came in at points 0.8 percent, sharply down from the same period last year at 1.5 percent. October’s inflation is worse than the 0.5 percent that occurred in September this year. But spike in oil prices would have played a big role in October inflation. The fall in oil price to the low $70 levels currently, is signalling that inflation in November is likely going to be moderate with the year to date inflation then heading for the low 4 percent range.
According to the report, inflation in October was driven primarily by the upward movement in the division of ‘Housing, Water, Electricity, Gas and Other Fuels’. The increase in the division’s index was mainly attributed to higher rates for electricity, water and sewage. In addition, ‘Food and Non-Alcoholic Beverages’ also contributed to the increase.
Point to point inflation is now well within the Bank of Jamaica’s mandated target range of 4-6 percent, but the fiscal year numbers which are the basis for their target could be much higher than the figure above. Regardless the central bank runs the risk of driving the economy into recession if they are not careful and move to ease interest rates fast.
Recent data from a large number of listed companies show sluggish revenues growth and lower profit for the September quarter compared with 2022 as well as the first half of 2023, added to this, tourist arrivals slowed considerably in recent months compared to the earlier part of the year and that industry has been the major driver of economic activity this year and added to that the construction sector has been in decline and could worsen.