KINGSTON — Despite the impact of the recent spike in oil and commodity prices in international markets, the gains made in containing the cost of living in Jamaica are expected to hold.
The Bank of Jamaica has projected that the rate of inflation for the financial year will settle at the low end of the 7.5 to 9.5 per cent range, while inflation targets for the 2011/12 financial year is between 5.5 per cent and 7.5 per cent.
Governor of the bank, Brian Wynter, reiterated the projections in his address to the annual conference of the Banking and Finance Group of the University of Technology (UTech), at the Jamaica Conference Centre, downtown Kingston, Wednesday April 6.
The Central Bank Governor observed that the stable inflation projection was realistic, despite the threat and uncertainty of imported inflation.
"Oil prices rose last year by 19-odd per cent, and inflation is going to come out somewhere at the low end of the 7.5 to 9.5 per cent range. So, the question to ask about next year, following the price increases that have just happened is, is it going to rise by that similar amount, or more or less?” He asked.
“It may just rise by a similar amount, or may decline more, so you can expect that the impact of oil on inflation may be similar to last year, but we don't know. So we do have to watch the price increases, carefully," he observed.
Pointing to the debilitating impact of inflation on fixed contracts, like pensions, savings and the salaries, Mr. Wynter observed that high levels of inflation virtually destroys the value of the income that individuals rely on to meet normal expenses.
“It erodes the provisions they had put aside for retirement. It makes working people poor,” he noted. He also pointed out that individuals, whose lives are shaped by such experiences, often adopt responses to survive.
“Workers negotiate shorter contracts, and demand adjustments that compensate for past losses, and insist on provisions that anticipate further erosion of purchasing power. The inflation experience spawns other behaviours. It makes otherwise sane and conservative people condone, invest in and even promote wild financial schemes,” Mr. Wynter said.
While admitting that the erosion of value and increase in uncertainty that goes with high and volatile inflation cannot be totally reversed, Mr. Wynter said that everywhere prices change, as the relative value of goods and services change and as exhaustible resources become scarcer.
“But, as happens in the developed world and increasingly in emerging market economies, it is possible to conduct our affairs so that inflation is hardly a factor in our long-term plans,” he assured. He said that, as a first step to contain inflation, the country needed to stabilise public finances.
“We need to stop the process that demands that we keep borrowing just to keep servicing past borrowing. We need to leave people with as much money in their pockets as possible, and cease paying more employees than necessary to produce fewer and fewer goods and services,” he warned.
Mr. Wynter also emphasized that, while the BoJ can do what is required to ensure that the inflation rate remains at a stable single-digit rate for the foreseeable future, much depends on what the public views as an acceptable rate of inflation.
“Jamaica experienced an average annual rate of inflation of over 15 per cent, over the last 50 years. Our main trading partner, the USA, averaged about 4 per cent over the same period. We need to make our voices heard, and help to forge a consensus on how much inflation is too much and oblige our public administrators to operate within our expectations,” he said.
By ALLAN BROOKS, Senior PR Account Executive