EVEN AFTER he has come and gone, Hurricane Ivan continues to reek havoc on Jamaican's lives and their pockets. This time, it is not houses Ivan threatens to blow down but our inflation targets. The experts believe that inflation for this quarter will be in the double digits.
Before Ivan, the Government had as one of their major fiscal targets an annual inflation rate of nine per cent. For the month of August, the inflation rate stood at 1.3 per cent. But now with the millions of dollars worth of devastation Hurricane Ivan has visited upon agriculture, a single digit inflation rate is in doubt.
Everton McFarlane, manager of research and modelling in the Economic Planning and Research division of the Planning Institute of Jamaica (PIOJ) said, "Hurricane Ivan had a most negative impact on agriculture and so this affects the domestic food supplies. This pushes up prices. In fact, anyone who has gone shopping for food has felt this already."
A SHORT TERM
However, while the experts agree that Hurricane Ivan will cause inflation to go up, it is agreed that this will only be for the short term. "If there is anything good to be said, it is that the crops that are affected are short term crops that can be replanted and reaped within three to four months. In the meantime, imported fruits and vegetables, which are already coming in, will supply the market and help to restrain prices," Mr. McFarlane said.
But imports, while solving the food supply problem, create another problem in the form of additional requirements for foreign exchange. Charles Ross, managing director of Sterling Asset Management said, "The Government will have to spend more and the central bank will have to relax their monetary policies." However, Mr. McFarlane is of the opinion that, "The Net International Reserve (NIR) is quite healthy." The NIR currently stands at US$1.643.6 billion representing 23.97 weeks of imports. He continues, "In the short term, the financial requirements to help us to recover from Hurricane Ivan should be managed without additional pressure on the local currency."
DEFENCE
"The big question," Mr. Ross ponders, "is, will interest rates go up. The Bank of Jamaica should use the NIR instead of jacking up interest rates to defend the currency if there is a serious threat of devaluation. But I don't expect run away devaluation either. Ideally, for now, interest rates should stay where they are or fall further."
And so at the end of the day, the inflation rate will go up, but only slightly. Mr. McFarlane says, "We will not experience run away inflation. There will be an initial spike in this quarter, but that will be contained."
Mr. Ross states, "I don't think inflation will run as high as 20 per cent, but it will not be at the projected nine per cent. In my opinion, inflation will rise by one or two point more. I don't see an economic catastrophe."
D. W.
