Inflation Lower than Expected for June Quarter

Inflation for the June quarter was 2.7 per cent, which was 1.3 to 2.8 per cent lower than the Bank of Jamaica’s (BoJ) forecast of 4.0 to 5.5 per cent.
BoJ Governor, Hon. Derick Latibeaudierre, speaking at the Bank’s quarterly press briefing held today (Aug.12) its downtown Kingston location, attributed the 2.7 per cent outturn largely to the stability in the foreign exchange market and the lower than expected impact of recent tax measures on retail prices.
“Underlying or core inflation also continued to decline reflecting the Bank’s tight monetary policy stance,” Mr. Latibeaudiere stated, noting that the outturn for the quarter brought the 12 -month point-to-point inflation to 8.9 per cent.
Meanwhile, inflation for the fiscal year has been revised downwards to 10 per cent to 12 per cent from the previous forecast of 11 per cent to 14 per cent and is projected to be in the range of 2.0 per cent to 3.5 per cent for the September quarter. Increased energy prices, seasonal demand and supply factors, will be the major triggers for the September quarter.
“However, excess production capacity, depressed domestic aggregate demand, and stable inflationary expectations are expected to provide some offsetting impulse,” Mr. Latibeaudiere noted.
As it relates to the real sector, the central bank estimates that the economy contracted in the range of 3.5 to 4.5 per cent for the quarter, the sharpest quarterly contraction in 10 years.
The major influence was the decline in mining and quarrying, due to the closure of three alumina plants.
“The contraction of the real sector occurred against the background of continued weak external and domestic demand as well as uncertainty regarding future economic prospects, indicated by the decline in the business and consumer confidence indices in the review period. The continued decline in remittances as well as growth in local unemployment contributed to the weak domestic demand,” Mr. Latibeaudiere explained.
The BoJ Governor advised that the global recession will continue to impact the economy in the September quarter, with contraction of three per cent to four per cent expected, with declines particularly in mining and quarrying, construction, transport, storage and communication, and manufacturing. However, robust growth is expected for agriculture, forestry, fishing, and hotels and restaurants.
He reminded that the speed of recovery for Jamaica is contingent on the pace at which the global economy improves, noting that the projection is for moderate growth in the world economy in 2010.