Wed | Apr 26, 2017

Annual inflation at 43-year low, data encouraging, says BOJ

Published:Friday | August 28, 2015 | 8:00 AMMcPherse Thompson

Inflation for the 12-month period ending July fell to 3.8 per cent, the lowest in more than 43 years and more than 200 per cent less than the nine per cent rate recorded in the comparative annual period ending July 2014, according to Bank of Jamaica (BOJ) data.

BOJ Governor Brian Wynter said the bank was forecasting that the 12-month rate will continue to fall through to the end of September, before rising in the second half of fiscal year 2015-16 to end within its target range of 5.5 to 7.5 per cent.

At the same time, he said the bank's inflation expectations survey conducted in July revealed that expected inflation 12 months ahead has fallen from 5.1 per cent reported in May this year to 4.0 per cent, a new record low in the history of the study.

"This is very encouraging, indeed, and supports our efforts to restrain general price increases to moderate levels," Wynter said at Wednesday's quarterly briefing on monetary policy at the bank's downtown Kingston offices.

"It will also support us in reaching our medium-term goal of matching our inflation with inflation of our main trading partners, that is, the Unites States, Trinidad & Tobago, Canada, the United Kingdom, China and the euro area."

Economic growth is faster than last year, "but slower than we were hoping for," said Wynter, noting that the bank's current forecast is for real gross domestic product (GDP) to expand within the range of 1.0 to 2.0 per cent for this fiscal year.

He said they are expecting a recovery from the production disruptions of the previous fiscal year, but are also taking account of the adverse impact of the drought on agriculture, forestry and fishing, as well as electricity and water supply.

"We are also expecting that the economy will continue to benefit from improvements in the business environment and external competitiveness," the central bank governor said.

Noting that confidence in the business community remained strong, Wynter said it appeared that the Jamaican stock market was also reflecting those sentiments with increases in stock prices and trading volumes across all economic sectors represented by listed companies.

He said the current account of the balance of payments for the March 2015 quarter reflected a modest surplus of US$39.4 million, the first quarterly surplus in 11 years.

A strong contributor to the surplus was tourism, which the governor said has shown an average increase of 4.5 per cent in stopover arrivals over the past four years.

 

moderate growth

 

The current account deficit is estimated to have narrowed in the June quarter, compared to the same period last year.

"This is on the back of moderate growth in arrivals and remittances, and an improvement in the merchandise trade," Wynter said.

Aided by lower oil prices, the current account is anticipated to contract to about 3.0 per cent of GDP for this fiscal year and will be fully covered by the estimated foreign direct investment flows of 4.0 to 5.0 per cent of GDP.

Noting that the net international reserves have continued to trend upwards, Wynter said the more buoyant outcomes were the result of improvements in net private capital inflows and sharper-than-anticipated declines in the current account deficit of the balance of payments.

The governor said the economic transformation underpinning those and other developments has been anchored by the implementation of the programme of structural reforms and the fiscal discipline demonstrated by the Government.

The recent bond issue that raised US$2 billion at long maturities and record low rates in the international capital market signals very strong investor confidence in Jamaica, he said.

Wynter said the Government is now fully financed for the fiscal year and, having completed the US$1.5-billion PetroCaribe debt buy-back, the fiscal position and debt ratios are better than before.

One consequence of this will be the large injection of liquidity into the financial system that will occur when the Government repays the first of the maturing National Debt Exchange bonds in February 2016.

"At $62 billion, this represents an unprecedented event that should exert a powerful force upwards on the relative prices of domestic assets and downwards on the cost of money in Jamaica," the central bank governor said.

"This is likely to present a challenge to margins in the financial sector and to returns for those who rely on investments in government paper. It will, however, be positive for business confidence, job creation and faster economic growth," Wynter added.

mcpherse.thompson@gleanerjm.com