Projection is for deceleration in the range of 3.5 per cent to 4.5 per cent

The Bank of Jamaica (BOJ), in its just released Monetary Policy Report, is projecting inflation in the current June quarter to decelerate in the range of 3.5 per cent to 4.5 per cent.

This is attributed to the slow pace of increase in domestic agricultural food price inflation as well as energy costs related to the previous March quarter. The BOJ’s Monetary Policy Report for May 2021, which was released on Wednesday (May 19) shows that agriculture inflation is expected to increase at a slower than usual pace, due to favourable weather conditions.

External energy prices are expected to have a positive impact on energy-related inflation for the June 2021 quarter. However, the impact is partly offset by a sharp decline in electricity rates in April 2021, which will contribute to energy-related prices being contained for the quarter.

Headline inflation to remain flat in September quarter

Headline inflation is projected to meander around the midpoint of the target range in the September 2021 quarter but to fall below the lower end of the range at December 2021. Inflation is projected to accelerate in the range of 4.5 per cent to 5.5 per cent at September 2021 and then decelerate within the range of 3.5 per cent to 4.5 per cent at December 2021.

“For the September 2021 quarter, the expected acceleration in headline inflation relative to the previous quarter is largely due to food price inflation driven by increases in both processed food and agriculture price inflation. For the December 2021 quarter, international commodity prices are expected to be marginally lower relative to the previous quarter, the BOJ reported in its Monetary Policy Report.

Notwithstanding, inflation for the quarter is expected to be largely driven by lagged effects of processed food price inflation as well as energy and transport prices. Beyond December 2021, inflation is expected to hover around the 5.0 per cent midpoint of target range.

Businesses’ Inflation Expectations Survey  

The BOJ’s Survey of Businesses’ Inflation Expectations, at March 2021, indicated that the one-year ahead inflation expectation was higher than the Bank’s inflation target of 4.0 per cent to 6.0 per cent. Similar to the previous survey, respondents expect the cost of stock replacement to reflect the highest increase among the input factors over the next 12 months.

The proportion of respondents who held this view declined slightly relative to the December 2020 survey.

“On the other hand, the costs of raw materials and fuel and transport were expected to be the lowest input costs over the next 12 months with 13 per cent and 11 per cent, respectively,” the survey pointed out.

Perceptions about the present business conditions improved slightly while the future business conditions declined on a yearly basis in the latest survey. Perception of inflation control worsened relative to the previous survey.

Inflation Expectations In the March 2021 survey, respondents’ expectation of inflation 12 months ahead decreased to 6.5 per cent, relative to 7.2 per cent in the December 2020 survey. Furthermore, businesses expected an annual point to point inflation rate at December 2021 of 6.0 per cent, which is above the annual point to point outturn of 5.2 per cent at March 2021.

Meanwhile, the index of inflation control decreased when compared to the December 2020 survey. This outturn reflected a decline in the share of respondents who were “satisfied” with how inflation was being controlled.

Additionally, there was an increase in the share of respondents who were “dissatisfied” with how inflation is being controlled.