Annual inflation falls to 8.1%
Consumer prices decelerated into negative territory in January, bringing the annual inflation rate closer to the top end of the central bank’s target band.
Prices deflated by 0.6 per cent in January after a flat December, Statin reported on Wednesday. Annual inflation also fell by more than a point to 8.1 per cent.
The new outturn will weigh on the decisions of the central bank’s Monetary Policy Committee, which will meet to determine whether it will continue to raise interest rates as it has done nearly consistently for more than a year, or hold rates steady at 7.0 per cent as it did in December. Its decision will be released on Monday, February 20.
Analysts polled by the Financial Gleaner say they expect the central bank to maintain its holding pattern. None expected the Bank of Jamaica to cut rates.
Jamaica is an import-dependent economy, with food and fuel being its top foreign purchases, which means that international commodity prices tend to weigh on local inflation. Recently, however, the prices of oil and other energy products have been on the downswing. And the UN Food and Agriculture Organization, too, has reported 10 months of consecutive decline in the FAO Food Price commodity index up to January.
Consumer inflation in Jamaica, as well as the large economies with which it trades, have ameliorated as a result; including, now, even the United Kingdom, although inflation there is still stubbornly above 10 per cent. All have continued with rate hikes, but the US Federal Reserve, like Jamaica, has tempered its pace.
In Jamaica, Statin cited a near one-point dip in food prices in January, which tracked with forecasts for a continued reduction in the price of local crops by agriculture officials, but the bigger decline was a 2.4 per cent dip in prices for household energy and other utilities, which the statistical agency attributed mainly to a fall in electricity bills – leading to negative consumer price movements, or deflation, of 0.6 per cent in that month.
Jamaica’s electricity is generated mainly from oil and natural gas, with an overall energy import bill that was last estimated by Statin at close to US$1.9 billion over the January-September 2022 period. Food imports was second at more than US$1 billion, and machinery and transport equipment third at over US$968 million.
One analyst noted that given that inflation had been flat but trending towards negative in December, followed by 0.6 per cent deflation in January, BOJ may not be inclined to raise rates on Monday, but added that the possibility of a rate cut was low to non-existent.
The eight per cent annual inflation outturn in January is trending towards levels last seen in December 2021.
The International Monetary Fund has affirmed in its latest report on Jamaica that inflation is expected to fall back to the 4 to 6 per cent target range by the end of this year, which is in line with BOJ’s previous projections that inflation would return to target range by the December 2023 quarter.