Inflationary Outturn-August

In August, inflation rose by 1.1%, the second fastest pace since the start of the fiscal year. This inflation rate was chiefly the result of a 2.7% upward movement in the index for the division ‘Food and Non-Alcoholic Beverages’. The index for the group ‘Food’ increased by 2.8% as production levels of some agricultural crops declined due to the continued drought conditions across the island. This resulted in higher prices for ‘Vegetables and Starchy Foods’ and ‘Fruit’ which rose by 9.8% and 2.6% respectively. Moderating the impact of these increases were the 1.3% decline in the index for the division ‘Housing, Water, Electricity, Gas and Other Fuels’, due to a fall in the cost of electricity and the 0.2% fall in the cost of ‘Transport’. The division ‘Transport’ was influenced by lower petrol prices. The other divisions that recorded increases were: Alcoholic Beverages and Tobacco (+0.5%), Clothing and Footwear (+0.3%), ‘Recreation and Culture (1.0%) and Restaurants and Accommodation Services (+ 0.1%). The year to August inflation rate stood at 5% while the fiscal year to date inflation stood at 3.3% and point to point at 9.8%.

The BOJ projects that that most of the impact from the drought will be seen in the September quarter, and will be reversed by year-end. This view is underpinned by the assessment that most of the crops that were affected by the drought were short-term, and as replanting resumes when the weather normalizes, agricultural prices will go back down. However we believe that the upside risks to BOJ’s 7.0%-9.0% inflation projection lie in the fact that geopolitical risks are at fever pitch levels and this could have negative pass-through effect on oil prices. While factors specific to Jamaica such as the possible increase in the tariff rate for electricity as requested by the JPS as well as the recent increase in bus fares will likely push inflation for the fiscal year to the upper bound of BOJ’s target.