Perception of inflation control by authorities

Business leaders are exhibiting more optimism about future business conditions in Jamaica while manifesting a level of pessimism about the present business conditions.

These were the main findings of the latest Survey of Businesses’ Inflation Expectations for December 2020, prepared by the Bank of Jamaica (BOJ) Sector Analysis Department.

The survey, which assists the BOJ in charting future policy decisions, assesses the perception of business leaders about the future movement of prices, current and future business conditions and the expected rate of increase in wages/salaries.

The most recent survey was conducted between December 7, 2020 and January 8, 2021 and had 284 respondents. The survey results, which were released to the public earlier this week by the BOJ, showed that the Present Business Conditions Index fell to 23.3 relative to 28.7 recorded in the previous survey in November 2020.

The survey, which captures the perception of chief executive officers, managing directors and financial controllers, pointed to a level of ambivalence as it regards present business conditions, which registered a decline. The decline was triggered by an increase in the number of respondents of the view that conditions are “worse”.

Much optimism about future business conditions

Conversely, the Future Business Conditions Index increased to 146.8 relative to 138.5 in the previous survey. According to the survey report, “the outturn for the Future Business Conditions Index mainly reflected an increase in the proportion of respondents, who believe that conditions will be ‘better’.”

With regard to the perception of inflation control, this showed an improvement in the December 2020 survey. This improvement, the BOJ reported, was largely due to an increase in the proportion of respondents, who were “satisfied” with how inflation is being controlled.

This was partially offset by an increase in the proportion of respondents who were “dissatisfied” with how inflation is being controlled. Turning to the matter of inflation expectations, the BOJ survey showed respondents’ expectation for inflation for 2020 was 6.7 per cent.

According to the BOJ, “this expectation was above the annual point-to-point inflation of 5.2 per cent for December 2020. Respondents’ expectation of inflation 12 months ahead increased to 7.2 per cent, up from the previous survey’s estimate of 6.4 per cent.”

Depreciation expected in exchange rate

Respondents to the survey anticipated depreciation over all three time horizons. In the December 2020 survey, the exchange rate was anticipated to depreciate by 0.1 per cent, 0.7 per cent and 0.8 per cent for the three-month, six-month, and 12- month time horizons, respectively.

“This represents a much slower pace of depreciation for the three-month, six-month and 12-month time horizons relative to the previous survey. Respondents in the November 2020 survey expected the rate to depreciate by 1.7 per cent, 2.5 per cent and 3.0 per cent over the three-month, six-month and 12-month time horizons, respectively,” the BOJ stated.

The Statistical Institute of Jamaica (STATIN) undertakes survey on behalf of the BOJ to ascertain the expectations of these economic agents about variables that are likely to have an impact on inflation in the near-term.