Point-to-Point Inflation Meets BOJ’s Expectations; Inches Higher in July

For July 2023, the All-Jamaica Consumer Price Index (CPI) increased by 1.1% for July 2023 influenced mainly by a 2.3% rise in the index for the division ‘Food and Non-alcoholic Beverages’.
The increase in the division’s index was due largely to a 9.9% increase in the index for the class ‘Vegetables, tubers, plantains, cooking bananas and pulses’. Drought conditions continued to adversely affect the supply of agricultural produce resulting in higher prices for items such as cabbage, Irish potato, tomato, sweet pepper and yam.
The inflation rate was also impacted by a 0.5% increase in the index for the ‘Housing, Water, Electricity, Gas and Other Fuels’ division. This was mainly due to higher electricity, water and sewage rates.
Additionally, the index for the division ‘Recreation, Sport and Culture’ increased by 0.4%. This was mainly impacted by a 0.5% increase in the index for the group ‘Newspaper, Books and Stationery’ due to higher prices for books and stationery supplies.
The point-to-point inflation rate from July 2022 to July 2023, was 6.6%. The main contributors were increases in the divisions: ‘Food and Non-Alcoholic Beverages’ (11.3%); ‘Restaurants and Accommodations Services’ (12.4%); ‘Furnishings, Household Equipment and Routine Household Maintenance’ (11.3%); and ‘Housing, Water, Electricity, Gas and Other Fuels’ (1.6%).
The rise in the index of the ‘Food and Non-Alcoholic Beverages’ division was influenced mainly by a 31.6% increase in the class ‘Vegetables, tubers, plantains, cooking bananas and pulses’. Over the period, there were higher prices for yellow yam, sweet potato, Irish potato, carrot, tomato and cabbage. Other notable increases were, ‘Cereals and cereal products’ (6.5%) and ‘Meat and Other parts of slaughtered land animals’ (4.9%). Contributing to the increase in the index for the ‘Restaurants and Accommodation Services’ division were higher prices for meals consumed away from home purchased from fast-food restaurants and street vendors.
The increase in the division ‘Furnishings, Household Equipment and Routine Household Maintenance’ was mainly due to a 13.9% increase in the index for the group ‘Goods and Services for Routine Household Maintenance’. This resulted from the increase in the National Minimum Wage for Jamaica implemented on June 1, 2023. For the division ‘Housing, Water, Electricity, Gas and Other Fuels’ the index increased by 1.6%. This was largely the result of increases in the index for the groups, ‘Imputed Rentals for Housing’ (2.2%) and ‘Electricity, Gas and Other Fuels’ (1.3%).
The BOJ is set to make its policy rate announcement on August 18 and we expect that the Bank will continue to hold its rate at 7% as it watches the pass-through effects of the previous rate hikes on deposit and loan rates. The BOJ had indicated that the inflation rate is anticipated to remain above the target range until the September 2023 quarter. This will be driven by recent increases in telephone and internet rates and the national minimum wage, seasonally higher agricultural prices as well as pending increases in other regulated prices such as transport. Although inflationary pressures have been sticky downwards in the last few months, inflation is anticipated to moderate further over the 1-year forecast horizon, supported by the BOJ's monetary policy tightening and the softening in global prices as the risk of a global slowdown rises.

(Sources: BOJ and STATIN)