THE BANK of Jamaica (BoJ) has projected the island's inflation rate to reach a high of 13 per cent during the current fiscal year, the first time in seven years that it would have reached the dreaded double digit.
With consumer prices affected by the pass-through of foreign exchange rate depreciation, the effects of the fiscal measures announced by Finance and Planning Minister Dr. Omar Davies in April, and announced increase in transportation costs, BoJ Governor Derick Latibeaudiere said it required a reassessment of the 7-8 per cent inflation target for the 2003/2004 financial year.
The revised target of 11-13 per cent comes against the background of a six per cent increase in the consumer price index in the June quarter the highest quarterly rate in Jamaica since March 1996 - as well as a significant 4-5 per cent increase expected in the September quarter.
However, the Governor said there was still the threat from possible increases in utility rates, as well as the outcome of minimum wage deliberations. In addition, the BoJ said, the cost of oil has been increasing on the international market and grain prices have been trending up due to extremely dry conditions in parts of North America and Europe.
In a prepared statement, read by Deputy Governor Collin Bullock at the BoJ's quarterly press briefing at the central bank's auditorium in downtown Kingston yesterday, Mr. Latibeaudiere said the widening of the consumption tax net, exchange rate depreciation, as well as a decline in agricultural supplies, influenced sharp increases in the consumer price index during the June quarter.
"Even outside of the regular, seasonal influence of agricultural commodity prices, the CPI increased by 4.8 per cent, still significant relative to the comparable two per cent in the March quarter, and 1.2 per cent in the June 2002 quarter," he said.
Core inflation was estimated at 2.3 per cent in the June quarter, relative to 1.3 per cent in the March quarter an increase the Governor said could be related to the exchange rate pass through.
Without specifically stating a figure, the Governor, in the statement, said growth in the economy was estimated to have been strong in the June quarter relative to a 0.9 per cent decline in the corresponding quarter of last year.
Pressed to say how strong was the growth, Mr. Bullock said "we are loathe to enter the discussion at this time," referring to debate generated last month by Opposition Spokesman on Finance, Audley Shaw, after Information Minister Burchell Whiteman, addressing a post-Cabinet press briefing at Jamaica House, announced the forecast of a three per cent growth in the first quarter of the financial year.
Mr. Shaw had questioned the source and validity of the projected growth, saying it had not been issued by the Statistical Institute of Jamaica, the official agency for computing the island's economic growth.
However, Mr. Latibeaudiere said the BoJ had no reason to doubt the projection of strong growth in the quarter. "If we say there's likely to be strong growth, we are not pushing a government line," he said. "It's done on a technical basis. I do not personally make forecasts; it's based on technical expertise and serious analysis." He also emphasised that forecasts made by the Planning Institute of Jamaica and STATIN entailed serious analysis by technical experts and therefore they should be given credit.
In the statement, the Governor said BoJ estimates have suggested that during the quarter there was growth in all sectors except manufacturing. The strongest areas of growth, he said, were in domestic agriculture, mining, construction, basic and miscellaneous services.
There was also improved performance in the tourism industry, measured by both visitor arrivals and expenditure relative to the June 2002 quarter. He also said the estimates of sectoral expansion were consistent with recent trends in commercial bank loan disbursement, especially to the tourism and communication sectors.
