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Business expectations grow for low inflation, JMD depreciation

Published:Wednesday | April 27, 2016 | 12:00 AM
Bank of Jamaica, at Nethersole Place, Kingston.

The Bank of Jamaica (BOJ) reported that its index of future business conditions jumped sharply over the previous survey, reaching 172, the highest on record.

Its survey of business executives, which is conducted by the Statistical Institute of Jamaica (Statin), also showed that the index of present business conditions reached its second-highest level since the record high of September 2007.

"The improvement in both indices reflected increases in the number of respondents of the view that conditions were or will be "better", while there were declines in the number of respondents indicating that conditions were "worse"," said the latest survey of business inflation expectations report.

The survey was conducted across the month of February and had 319 respondents.

Just last week, the Conference Board of the Jamaica Chamber of Commerce reported that business confidence rose to record levels amid general election euphoria, while consumer confidence rose to the third-highest level on record.

Those levels will likely attenuate over the next two quarters, says Don Anderson of Market Research Services, who conducts the survey in collaboration with US-based Professor Richard Curtin.

"Based on the history, expectations will start to taper off in the next six months after an election," he said.

Respondents to the BOJ survey are now expecting inflation to remain in the single digits. Expectation for 2016 is for 4.1 per cent increase in the consumer price index, which is still above the 3.6 per cent 12-month inflation in February, but it was more in line with actual price movements.

Just two years ago, business executives believed annual inflation would come in closer to 12 per cent. Their perception of inflation control by the authorities, and namely the BOJ, has also improved.

Notably, the highest number of respondents to say that they were satisfied with the authorities' control of inflation was reported in the February survey. Over 35 per cent responded as such, whereas just 4.3 per cent expressed satisfaction in the first survey in 2013, while over 70 per cent were dissatisfied. A little under a third still remains dissatisfied.

Executives were also more optimistic about exchange-rate stability.

They believed the Jamaican dollar, which averaged $121.37 to US$1 in January, would average around $122.22 this month, $123.43 in July and $125.25 next January, reflecting a 3.5 per cent depreciation over the following 12 months.

The local currency depreciated by five per cent against the greenback in 2015, following depreciation of 10 per cent in 2014, and 13 per cent the year before that. The Jamaican dollar has depreciated by two per cent since the start of 2016.