BoJ Projects 6-8 Per Cent Inflation for 2012/13

The Bank of Jamaica is projecting that headline inflation will be within the range of 6.0 per cent to 8.0 per cent for 2012/13 financial year, largely similar to the previous fiscal year’s out-turn.

This was disclosed by Governor of the Bank of Jamaica (BoJ), Brian Wynter, during his presentation of the Central Bank’s report for the January to March, 2012 quarter.

With respect to the inflation forecast for the June, 2012 quarter, the projection is that it will be in the range of 1.5 per cent to 2.5 per cent. This follows the out-turn of 1.7 per cent for the March 2012 quarter, which was within the forecast range of 1.0 per cent to 2.0 per cent.

However, the Central Bank Governor cautioned that the current forecast “assumes that imported inflation, domestic inflation expectations and capacity conditions will be relatively stable during the quarter."

Meanwhile, the inflation forecast for the entire financial year is underpinned by assumptions which include, “generally favourable weather patterns, both in Jamaica and the major grain producing countries, and a moderate increase in the price of crude oil, given the projection for continued growth in the global economy,” Mr. Wynter said.

However, Governor Wynter pointed to “significant upside risks to the forecast for inflation, for both the current quarter and the fiscal year.”

The primary risk, the Governor said, relates to the measures that may be announced in the “imminent budget presentation to set the fiscal accounts and debt dynamics on a sustainable path for the medium term."

He observed that these measures could result in “inflation exceeding the upper bound of the forecast range for both the June quarter and the fiscal year. This could be exacerbated by higher-than-anticipated oil prices if there is a resurgence in geopolitical tensions and growth in the world economy is stronger than is currently being projected.”

With respect to “real GDP growth” the Bank of Jamaica projects continued slow growth of domestic output for the June 2012 quarter, largely similar to the estimated expansion for the March 2012 quarter.

“Agriculture, Forestry & Fishing continues to be the major drivers of growth and is expected to be supported by expansion in Mining & Quarrying, Hotels & Restaurants and Electricity & Water Supply,” he said.

For the 2012/13 financial year, economic output is projected to grow marginally in the range of 0.0 per cent to 1.0 per cent. The current outlook reflects the expectation of continued weak domestic demand, albeit improving relative to the crisis period, and a slower pace of expansion in world growth in calendar year 2012, relative to 2011.

In spite of the forecast for a slowdown in world growth in 2012 relative to 2011, the Central Bank anticipates that with the steady recovery in the US economy, there will be an increase in external demand for Jamaica’s goods and services as well as acceleration in remittance flows to Jamaica.

According to the Central Bank, “upside risks” to the growth forecast include the impact on growth and employment of major investment projects later in the fiscal year. However, the risks to the growth forecast at this time are largely to the “downside,” primarily the uncertainty regarding the extent of the fiscal consolidation to be announced.

“Fiscal consolidation would result in reduced domestic demand in the near-term, which could be exacerbated by weaker global growth and the impact of adverse weather,” he observed.

However, the Bank is forecasting that should the fiscal measures materialise, the adverse impact on growth will be temporary.

“Inflation, after the initial impact of potential fiscal measures, is expected to decelerate over the medium term towards the rate of inflation of our major trading partners. Additionally, economic growth should pick up in 2013/14 financial year and strengthen in the subsequent years, consistent with the forecast for expansion in the world economy, the successful implementation of a number of foreign direct investment projects and the re-opening of two alumina plants,” Mr. Wynter argued.

By Allan Brooks, JIS Senior Reporter