Briefing | Jamaica’s economy performing on face value 2018
How is the inflation rate?
Jamaica experienced no inflation in November. The Statistical Institute of Jamaica (STATIN) has reported that the inflation rate for November was recorded at zero per cent compared to 0.7 per cent in October and 1.1 per cent in September 2018. Although there was a 0.3 per cent increase in the price of fruits and vegetables as well as other minor increases in other categories, they were offset by a 0.8 per cent decline in the price of water, electricity, gas and other fuels, according to STATIN. As a result, there was no real change in average prices throughout the month of November. Jamaica also experienced zero inflation rate in May 2018. Average inflation rate for the year is expected to be between four and six per cent, similar to last year.
What is the inflation target?
Similar also to last year, the inflation rate is on track to meet the targeted four to six per cent for the year, according to the Bank of Jamaica's (BOJ) Quarterly Monetary Policy Report. The low inflation might be driven by low domestic demand, which might continue if average income levels remain low. Although the decline in oil prices contributed to the negligible inflation rate in November, this as well as other factors, for example, inclement weather conditions, have the ability to instantaneously put upward pressure on prices. The risks associated with achieving this inflation target have not really changed from last year. If, however, these risks are anticipated, Jamaica can put buffers in place to properly manage itself in any adverse scenario. As usual, Jamaica
has not been benefiting wholesomely from the overall low oil prices - too much leakage and evaporation it appears.
What about the exchange rate?
The Jamaican dollar nominal exchange rate compared to the US$ stood at approximately $129 to US$1 when compared to $126 to US$1 the same time last year. Jamaica's nominal exchange rate has been volatile throughout the course of 2018, climbing to as high a $138 to US$1 in some instances, and averaging as high as $136 to US$1 in August and September 2018. The exchange rate gradually fell to $131 in October, a similar rate to that of October 2017.The Jamaican dollar nominal exchange rate has demonstrated a decreasing trend in the latter months of the last few years.
What about growth?
According to STATIN, Jamaica's economy grew by 2.2 per cent during the April to June quarter, when compared to the similar period last year. This is as a result of a 7.2 per cent increase in the goods-producing industry and a 0.6 per cent increase in the service industry. Notable increases were registered in agriculture and forestry - and fisheries grew by 12.5 per cent - that came about due to favourable weather conditions. Mining and quarrying grew by 31.6 per cent, construction 2.9 per cent and manufacturing 0.2 per cent. Jamaica's economy is mainly service-based; the industry accounts for more than 70 per cent of the country's GDP. Unemployment, according to STATIN, is below nine per cent, the lowest it has been for decades. Fundamentally, it has to be reiterated that if Jamaica wishes to increase economic growth above two per cent per annum, it must be able to stabilise output from one season to the next and incorporate research and development to connect linkages within and between industries. Buying and selling continues be a major part of our daily business activity, without adding real value to the product that we buy to sell. The country must think carefully about how it plans to increase the value of its output in production its processes to increase national earnings. Once more, growth is best if it is inclusive; strong attention must be placed on income distribution within the country.
What about the terms of trade?
STATIN reports that from January to September, Jamaica's trade deficit has increase from US$3.05 billion to US$3.2 billion from 2017 to 2018. Over the said time period, Jamaica's imports have increased by approximately US$441 million, from US$4.04 billion last year to $4.48 billion this year. Under classical assumptions, one would expect imports to decline when the exchange rate depreciates, but it appears this is not the case for Jamaica. The exchange rate has depreciated, but the value of US dollar imports has increased. There was a 9.9 per cent increase in the imports of manufactured good, a 5.8 per cent increase in the importation of food, a 9.5 per cent increase in machinery and transportation, and a 20.6 per cent increase in chemicals purchased from January to September 2018. Exports increased by US$294 million, but this was not enough to offset the $441 million in imports - as a result, Jamaica's trade balance remains negative.