Inflation at 3.2% in July

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Jamaica News: Bank of Jamaica (BOJ) Governor, Brian Wynter, says the rate of inflation rose marginally to 3.2 per cent at the end of July, a 0.4 per cent increase over the out-turn at the end of June.

Speaking at the Central Bank’s quarterly media briefing on Wednesday (August 29), at the BOJ Auditorium, downtown Kingston, Mr. Wynter said data from the Statistical Institute of Jamaica (STATIN) indicate that the increase was mainly influenced by increased electricity, water and sewerage costs; rising costs for some agricultural produce; and higher transportation costs.

Mr. Wynter reiterated that the lower-than-targeted 2.8 per cent June inflation out-turn and the July figure, which fell below the BOJ’s four to six per cent target, primarily reflected stronger-than-anticipated declines in food prices since the start of 2018.

The Governor further noted that the June out-turn was due to a reduction in the pass-through of oil prices, and prevailing weaker-than-expected domestic demand.

Mr. Wynter said the BOJ anticipates that increased economic activity will spur the inflation to rise to the four to six per cent range, consistent with the target under Jamaica’s agreement with the International Monetary Fund (IMF), and not through perceived manipulation of the foreign exchange rate by the Central Bank, to which he again declared “there is absolutely no truth”.

“We have not done that, we are not now doing that, and we will not do that,” he further emphasised.

The Governor indicated that the near-term inflation forecast is mainly predicated on an expected increase in domestic agricultural prices, oil prices remaining elevated, and the impact of improving economic activity, supported by the accommodative monetary conditions over the last year.

Of note, he added, the level of inflation expected by businesses remains anchored in the midpoint of the Bank’s five per cent target.

The Governor said the rate of private-sector credit growth is also expected to influence the inflation rate.

He noted that credit extended by deposit-taking institutions to private-sector businesses and individuals grew at an annual rate of 15.9 per cent at June 2018, compared to 13.9 per cent in March, and 12.4 per cent at June 2017.

This expansion, Mr. Wynter pointed out, was evenly balanced between business loans – 15.8 per cent, and personal loans – 16 per cent.

Simultaneously, the Governor added, “we have seen the weighted average lending rates at commercial banks continue their decline during the June 2018 quarter”.

“If this acceleration in private sector credit growth continues, the resulting increase in economic activity will [also] support inflation returning to the target of four to six per cent with greater certainty. The Bank of Jamaica is going to closely monitor these credit conditions and will make further cuts to the policy rate, if required,” he said.

The BOJ announced on Tuesday (August 28), that it would be maintaining the policy interest rate on overnight placements at two per cent.

The Bank said this decision reflects its updated assessment that inflation will rise towards the lower end of the four to six per cent target by the January to March 2019 quarter and, thereafter, will approach the middle of the range.

Mr. Wynter pointed out that the inflation path continues to reflect “some slack” in the economy, which emphasises the continued elevated risk of the rate falling below the baseline projection.

The Governor said an assessment of the risks to the forecast are “balanced”, with the main upside being worse-than-anticipated weather conditions, higher-than-projected domestic demand, and faster-than-anticipated exchange-rate depreciation, with international commodity prices, particularly crude oil, skewed to the downside.

“While we are now seeing some encouraging signs of the faster expansion in private-sector credit that we need, we need to be sure that it is sustained, so that the ‘slack’ [in the economy] is removed as quickly as possible”.

Noting that Jamaica’s overall macroeconomic indicators “continue to reflect stability”. Mr. Wynter said this environment will enable the BOJ to “continue with an accommodative policy stance in support of expanded output and job creation, which will return inflation to the Bank’s four to six per cent target”.


Source: JIS News

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