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The Bank of Jamaica (BoJ) inflation forecast for the September 2010 quarter is in the range of 1.5 per cent to 2.5 per cent.
This moderation in the movement of the cost of living, if achieved, will mark a continued reduction in the quarterly inflation rate, following the 4.1 per cent and 2.6 per cent recorded in the March and June 2010 quarters, respectively.
The forecast is highlighted in the latest Quarterly Monetary Policy Report (QMPR), published by the BoJ earlier this month.
The report further noted that the inflation forecast for the September 2010 quarter is expected to be significantly lower than the seasonal average of 3.8 per cent. The expectation of moderate increases in imported prices, stable capacity conditions, declining inflation and stable exchange rates support the forecast for the September quarter.
With respect to imported inflation, the Central Bank projects that the average import price will rise by 2.4 per cent in the September 2010 quarter. This upward trend should be driven largely by increases in agricultural raw material prices and moderate increases in crude oil prices. "Wheat, corn and soybean prices are projected to rise by 17.4 per cent, 4.1 per cent and 6.2 per cent, respectively," the report states.
The QMPR outlook for wheat prices is based on the adverse impact of drought conditions in Europe on production. Also, the prices of substitutes, such as corn and soybeans are expected to be affected.
Additionally, the price of rice from Guyana is expected to continue to increase due to prolonged drought conditions in that country. However, the Bank projects that the benchmark 'Thai-rice-price' will decline by 6.7 per cent in the quarter, due to the resumption of full scale exports of rice from Thailand. In this regard, the domestic impact of the price increases in Guyana should be lessened by the importation of rice from other sources.
The Central Bank is forecasting an uptick in the price of crude oil. "Crude oil prices are forecasted to rise by 3.8 per cent relative to the average price for the June 2010, quarter. The projected increase in the average price of crude oil reflects expectations of an increase in demand, due to a better than expected economic outlook for Europe," the report notes. The depreciation of the US dollar is also expected to increase demand for the commodity as an alternative investment.
However, the Bank says the pass-through or full effect of the rise in imported prices to domestic inflation would be "moderated by the lagged impact of the 4.1 per cent appreciation of the Jamaica Dollar vis-à-vis its US dollar counterpart in the June 2010 quarter."
Additionally, the foreign exchange market should be relatively stable in the September quarter, given anticipated increased inflows from major earners of foreign currency in particular, mining related exports. Spending on imports of raw material and consumer goods is also projected to increase in the quarter.
On net private capital inflows, the QMPR states that the receipts should be sufficient to offset the demand for foreign currency associated with these current account transactions.
With respect to domestic capacity conditions, the Bank expects that excess domestic capacity conditions should continue to temper potential price increases in the economy. According to the Report, the measure of the output gap remains negative, "though the magnitude is decreasing as the economy slowly recovers." The estimate suggests that the gap should remain negative in the September quarter, but could become positive in the second half of the fiscal year.
The Bank's survey of the inflation expectations of businesses conducted in the June quarter indicated that firms expect that inflation for the 2010 calendar year will moderate significantly, relative to what they expected for 2009.
The responses to the survey revealed a general moderation in inflation expectations due to an improvement in the perceived management of inflation and the subdued demand that has resulted from lower incomes. Businesses reported some improvement in their perception of present business conditions and showed a record increase in their expectation of future business conditions.
"If this increase in output outpaces the growth in demand, it could translate to lower inflation over the short to medium term," the QMPR points out.
http://jis.gov.jm/finance_planning/h...ER_QUARTER.asp
This moderation in the movement of the cost of living, if achieved, will mark a continued reduction in the quarterly inflation rate, following the 4.1 per cent and 2.6 per cent recorded in the March and June 2010 quarters, respectively.
The forecast is highlighted in the latest Quarterly Monetary Policy Report (QMPR), published by the BoJ earlier this month.
The report further noted that the inflation forecast for the September 2010 quarter is expected to be significantly lower than the seasonal average of 3.8 per cent. The expectation of moderate increases in imported prices, stable capacity conditions, declining inflation and stable exchange rates support the forecast for the September quarter.
With respect to imported inflation, the Central Bank projects that the average import price will rise by 2.4 per cent in the September 2010 quarter. This upward trend should be driven largely by increases in agricultural raw material prices and moderate increases in crude oil prices. "Wheat, corn and soybean prices are projected to rise by 17.4 per cent, 4.1 per cent and 6.2 per cent, respectively," the report states.
The QMPR outlook for wheat prices is based on the adverse impact of drought conditions in Europe on production. Also, the prices of substitutes, such as corn and soybeans are expected to be affected.
Additionally, the price of rice from Guyana is expected to continue to increase due to prolonged drought conditions in that country. However, the Bank projects that the benchmark 'Thai-rice-price' will decline by 6.7 per cent in the quarter, due to the resumption of full scale exports of rice from Thailand. In this regard, the domestic impact of the price increases in Guyana should be lessened by the importation of rice from other sources.
The Central Bank is forecasting an uptick in the price of crude oil. "Crude oil prices are forecasted to rise by 3.8 per cent relative to the average price for the June 2010, quarter. The projected increase in the average price of crude oil reflects expectations of an increase in demand, due to a better than expected economic outlook for Europe," the report notes. The depreciation of the US dollar is also expected to increase demand for the commodity as an alternative investment.
However, the Bank says the pass-through or full effect of the rise in imported prices to domestic inflation would be "moderated by the lagged impact of the 4.1 per cent appreciation of the Jamaica Dollar vis-à-vis its US dollar counterpart in the June 2010 quarter."
Additionally, the foreign exchange market should be relatively stable in the September quarter, given anticipated increased inflows from major earners of foreign currency in particular, mining related exports. Spending on imports of raw material and consumer goods is also projected to increase in the quarter.
On net private capital inflows, the QMPR states that the receipts should be sufficient to offset the demand for foreign currency associated with these current account transactions.
With respect to domestic capacity conditions, the Bank expects that excess domestic capacity conditions should continue to temper potential price increases in the economy. According to the Report, the measure of the output gap remains negative, "though the magnitude is decreasing as the economy slowly recovers." The estimate suggests that the gap should remain negative in the September quarter, but could become positive in the second half of the fiscal year.
The Bank's survey of the inflation expectations of businesses conducted in the June quarter indicated that firms expect that inflation for the 2010 calendar year will moderate significantly, relative to what they expected for 2009.
The responses to the survey revealed a general moderation in inflation expectations due to an improvement in the perceived management of inflation and the subdued demand that has resulted from lower incomes. Businesses reported some improvement in their perception of present business conditions and showed a record increase in their expectation of future business conditions.
"If this increase in output outpaces the growth in demand, it could translate to lower inflation over the short to medium term," the QMPR points out.
http://jis.gov.jm/finance_planning/h...ER_QUARTER.asp
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