Businesses reluctant to drop prices

Businesses reluctant to drop prices despite revaluation

Buiness reporter

Wednesday, January 24, 2018

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Head of the Consumer Affairs Commission, Dolsie Allen, yesterday revealed that business owners have expressed caution in lowering the price of goods in line with the declining US currency, from an unease that the trend may not be sustainable.

“The reason that they have given is that people would have had stock over a period of time, and in terms of time period, they are saying that it is not long enough for them to realise if it's going to be sustainable,” Allen told the Jamaica Observer at a press conference held at the Ministry of Industry, Commerce, Agriculture and Fisheries.

Local companies that import goods to sell on the Jamaican market often price goods in line with the US currency exchange rate, as at purchase date. Statistics from the Bank of Jamaica (BOJ) showed that the Jamaican dollar reached an all-time high of $131 to US$1 in September 2017 but strengthened to an average $128 to US$1 in October. It again strengthened to average $125 last December.

According to the central bank, the introduction of the BOJ Foreign Exchange Intervention and Trading Tool has started to address weaknesses of the previous forex method which relied on weighted average selling rate. It meant that some institutions may have bought foreign exchange from BOJ at a price too expensive or too cheap, compared to what they might have paid on the open market.

The central bank added that continuous appreciation of the local currency going forward will be led by little to no net pressure on the foreign exchange market from improvements in Jamaica's current account balance of payment. BOJ said that over the last two fiscal years, the country showed signs that foreign currency earnings are adequate, recording a deficit of less than two per cent of GDP — well within the range that is considered to be sustainable for Jamaica.

Still, only the Wisynco Group publicly announced that effective January 2, 2018, it implemented a three-per cent reduction for the majority of its imported portfolio of products due to the revaluation of the Jamaican dollar to its US counterpart.

“Over the years that is exactly what happens. Whenever the dollar appreciates there is little or no movement in the prices but when the dollar depreciates, even the slightest, you will see an increase. When you ask why is it going up so much they say the dollar is depreciating so they have to anticipate the repurchase of the item that they are selling,” Minister Karl Samuda told the Business Observer.

He said while it is reasonable to assume that in some instances importers have had losses based on depreciation and then seek to recover money lost upon appreciation of the currency, the ministry is pressing businesses to consider very seriously the question of giving the consumers the benefit.

“In the old days we had the price commission and we would examine all the factors carefully before awarding a price that it could be sold at. Today we depend on them to use good conscience and the marketplace competition will determine the price,” Samuda said.

“There is no better determinant of pricing than through the market, which is based on competition. If the competition is fair and there is no cartelisation of the marketplace — that is, different suppliers coming together and deciding on a price — once you have a vibrant, open market system it offers the best opportunity to get the best price that the consumer has,” he continued.

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