Inflation plunges again in Jamaica

Inflation in January this year plunged a healthy 0.6 percent in Jamaica, bringing the point-to-point inflation to 8.1 percent and the fiscal year to date inflation to 5.6 percent, putting it on track to meet the 4-6 percent inflation rate Bank of Jamaica is targeting.
The decline in January is mainly due to a 2.4 percent decline in Housing, Water, Electricity, Gas and Other Fuels and a 0.9 percent fall in Food and Non-Alcoholic Beverages, while Restaurants and Accommodation Services rose 1.4 percent.

BOJ’s several missed inflation forecasts

Bank of Jamaica has done an awful job of telling the truth about inflation in Jamaica since early 2021 and the bank’s management of the tools to combat it. The impression given is that inflation continues to run at nearly ten percent per annum for most of this year, but that is false. According to data released by Statin since January, inflation is running at just under 6.5 percent per annum, not the ten percent the bank is consistently mentioning in its reports and recently reduced to 9.3 percent.

BOJ interest cuts overnight rate.

It is not that interest rates should not have been increased, the question is the extent of it and how long it may go on. It also means that they have been applying the incorrect dosage of interest rates medicine to inflation that has subsided since the start of the year. The reality is that the terribly high inflation rate was up to September last year, not in 2022, although they were some high months this year but not as high as the comparative periods last year.
Come December or January, the country will be told that inflation has suddenly plummeted to the 6 percent level because the bad periods for 2021 are no longer in the data set. The decline will have had little to do with Bank of Jamaica’s interest rate hike, but as sure as night follows day, the central bank will be praised for its action in bringing the inflation rate sharply down. That of course will be far from the truth.
The reality is that just about every public forecast by the country’s central bank since the beginning of last year proved to be wrong. It started with a letter written to the Minister of Finance in March last year in defending the maintenance of the 4-6 percent target for three years. In May of that year BOJ stated that while inflation is forecasted to rise further over the next two months, the Bank forecasts inflation to fall in the second half of the year, consistent with the consensus forecast for a fall in commodity prices. Immediately after that statement, the inflation rate declined in the following two months.
The classic case of getting wrong is BOJ’s letter to the Minister of Finance in 2021. 
“I am recommending that the target for the 12 months point to point in the spread as measured by the percentage change in consumer price index remains at 4 percent to 6 percent for the next three fiscal year,” this is an extract from a letter written to the Minister of Finance by Richard Byles head of the Monetary Policy Committee (MPC ) of Bank of Jamaica dated March 29th 2021, the letter went on to state “the targeted lower rate of inflation is not advisable as achieving this lower rate will require tighter monetary policy which will restrain the anticipated recovery in the Jamaican economy and impair the government’s debt reduction strategy. “
By May of 2021, the central bank changed its position, informing the nation that tighter monetary policy would be put into effect and that the overnight rate would be raised when they meet in September, an action which has taken from 0.5 percent to 1.5 percent.
Inflation data indicates that the dark days of higher inflation started to overshadow the country from November and December of 2020 compounded by the March inflation and was well embedded from May onwards suggesting the higher rates should have commenced from then, but the focus on point to point inflation disguised the true extent of what was going on. It appears that they are set to make the same error again, this time by focusing overwhelmingly on the point to point inflation since last year rather than looking at the trends since late last year and in 2022.
Interestingly, although the central bankers raised interest rates over the period to 6.5 percent the economic growth of the country exceeded the bank’s forecast and raises questions about their original assessment that rising interest rates would have trimmed GDP growth significantly.
The issue for this publication is not whether the Bank of Jamaica should raise rates it was clear from the earliest 2019 that the bank erred in dropping rates as low as it did at the time thus removing the incentive of Jamaicans to save in local dollars and instead encouraging them to switch to U.S. dollar investments. If the Bank of Jamaica in a matter of a few months got the inflation outlook so wrong what assurance can there be that the increase rates will not over impact the economy and create mayhem within the financial system?
Jamaicans should therefore be very concerned whether the Bank of Jamaica is correctly interpreting the data that they are churning out or not and how much credibility can be afforded them in directing the country’s monetary affairs. Longer term the bank is still holding to the 4 to 6 percent target, which suggests that sooner than later rates will have to be reduced to prevent the rate from slipping under the 4 percent bottom.
They stated in their MPC release that “while headline inflation at June 2022 may be lower than expected, the Bank prefers to see evidence of a definitive fall in commodity prices, consistent with global consensus forecasts, and a reduction in core inflation before moderating the tight monetary policy stance. The Bank expects to see this in the September and December 2022 quarters and with it, a fall in inflation expectations. Of course, this depends on tensions between Russia and Ukraine not escalating.”
The MPC report goes on to say, “inflation is projected to fall within the target range by the December 2023 quarter. This is two quarters later than previously projected. Consistent with the consensus forecast for a fall in commodity prices and the Bank’s overall monetary policy stance, and absent any new shocks, annual inflation is projected to range between 9 per cent and 11 per cent for the remaining months of 2022. Inflation is projected to fall to single digits in early 2023 as long as the conflict between Russia and Ukraine does not escalate and inflation among Jamaica’s trading partners continues to fall. In addition, the Bank’s baseline forecast assumes that the public’s expectation for future inflation will fall during the second half of 2022.”
The above is not what is taking place currently.

Jamaica’s Inflation stays low

Inflation in Jamaica for the first five months of 2020 remained extremely low, with the rate for May, coming in at 0.1 percent following April’s increase of just 0.2 percent, leading the year-to-date inflation rate at negative 0.4 percent.
Inflation over the past twelve months came out at 4.2 percent, with the period between July and November rising by exactly 4.2 percent, mostly due to a hike in the exchange rate of the Jamaican dollar versus the US dollar.
The May movement resulted mainly from a 1.1 percent increase in the heavily weighted Food and Non-Alcoholic Beverages division, according to a release from the Statistical Institute of Jamaica due to higher prices for agricultural produce, with a 2.3 percent rise. The division of Housing, Water, Electricity, Gas and Other Fuels increased 1.5 percent due mainly to electricity rates, which resulted in a 5.6 percent upward movement in the index for the group.
The index for the Education division fell 22.1 percent, primarily due to a decrease in tuition fees for the summer term and the Transport division index fell 0.3 percent, with lower prices for petrol contributed to this decline.

Jamaica’s inflation is tamed

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Inflation in Jamaica is tamed. At least that is what data out of the Statistical Institute of Jamaica (STATIN) is suggesting, with negative inflation for the first four months of the year. 
According to the latest data on the Consumer Price Index (CPI), the inflation rate for April 2020 was 0.2 percent. The increase for April comes on the heels of low price increases from December last year, leading to a rise of 0.5 percent in the CPI index followed by January, with a negative price movement of 1.1 percent. February ended, with an increase of 0.7 percent, while March had a decline of 0.3 percent and with the April fall, the year to date movement came out at negative 0.5 percent.
The inflation rate for April is not directly comparable to the previous periods, but whatever difference there maybe is unlikely to be material. Statin updated the basket of goods and services used in the compilation of the index. Accordingly, the products and services included in the new CPI basket and the weights associated with each item have changed based on a 2017 Household Expenditure Survey. The difference between the old and new weighting is not substantial, with Food and Non-Alcoholic Beverages weighting of 37.4 percent previously, is now down to 35.8 percent. The group of Housing, Water, Electricity, Gas & Other Fuels is up to 17.8 percent from 12.8 percent previously. Transport is now at 11.2 percent versus 12.8 percent in the old basket. Recreation, Sports & Culture is at 5 percent compared to 3.4 percent in the previous measure. The only other change of note was the areas of Insurance & Financial Services that is now 1.1 percent. Previously it was grouped with Personal Care, Social Protection & Miscellaneous Goods & Services that amounted to 8.4 percent of the overall basket, with the new weighting for the new category, down to 5 percent.
According to STATIN, the reduction in the GCT rate, from 16.5 percent to 15 percent, impacted the inflation rate for April 2020. The ‘Food and Non-Alcoholic Beverages’ recorded an increase in its index of 0.3 percent. The inflation rate for the division ‘Housing, Water and Electricity’ was 0.2 percent due to a rise of 3.1 percent in the index for the group ‘Water Supply and Miscellaneous Services Relating to the Dwelling.’ The Transport division declined by 0.5 percent and was mainly attributable to the reduction in the costs of petrol.

Prices in Jamaica plunged for December

Prices in Jamaica on average, fell sharply by 1 percent in December last, bringing inflation as measured by the country’s Consumer Price Index to 2.4 percent for the calendar year. The fall in inflation for December occurred across several main categories of goods and services.
The movement in the index for the fiscal year-to-date was 2.7 percent. The rate of increase on average is well below the target set by the government for the central bank to aim at, for the fiscal year of 4 to 6 percent. Had it not been for a spike in the rate of exchange between April and September last year, the rate for the year would have been even lower than the final numbers reported.
Food and Non Alcoholic Beverages and the Transport division declined by 1.5 percent. The fall in Food and Non-Alcoholic Beverages resulted from a decline of 6.2 percent in Vegetables, Starchy Foods due to increased supplies of agricultural produce the Statistical Institute of Jamaica (STATIN) stated. The decrease in the Transport was due to lower prices for petrol, while Housing, Water, Electricity, Gas and Other Fuels fell by 1.3 percent, due mainly to reduced rates for electricity, sewage and water rates.

Deflation for Jamaica’s Q1

Prices declined for another month in Jamaica, according to data just released by the Statistical Institute of Jamaica (STATIN) but prices are still high than a year ago.
Statin stated that the All Jamaica Consumer Price Index declined for the second consecutive month as a negative 0.1 percent inflation rate was recorded for March 2018. The main contributor to this movement was the 1.0 percent fall in Food and Non-Alcoholic Beverages category, due to lower prices for agricultural produce resulting in a 4.3 percent reduction in index for the class Vegetables and Starchy Foods. Transportation recorded a decline of 0.4 percent for the period, resulting from lower fuel prices. Upward movement of a 3.2 percent in Housing, Water, Electricity, Gas and Other Fuels, primarily resulting from higher electricity, water and sewage rates help to negate the above mention declines. As at March 2018, the calendar year-to-date inflation was negative 0.2 percent and the movement in the index for the last twelve months is 3.9 percent.

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