Inflation drops to 2.4% for December

Friday, January 18, 2019

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Jamaica's Consumer Price Index (CPI) for the month of December 2018 fell by one per cent, triggering a drop in the country's annual point-to-point inflation rate to 2.4 per cent at the end of December 2018.

The plunge in inflation will also force the Bank of Jamaica (BOJ) to file a report on proposed remedial actions to the minister of finance and the public service by March 15, since the rate at 2.4 per cent is lower than BOJ's target of 4.0 per cent to 6.0 per cent.

Under the terms of the precautionary Stand-by Arrangement between the International Monetary Fund and Jamaica, BOJ is also obliged to consult with IMF staff on the deviation of inflation from the programme target.

The (BOJ) in a release yesterday, blamed the drop in inflation on declines in agricultural prices during the December 2018 quarter coupled with a significant reduction in international oil prices during the same period.

It added that the country had also experienced a limited pass-through of improved domestic demand conditions to prices.

“The economy needs a level of inflation that is neither too high nor too low. An inflation rate of between 4.0 per cent and 6.0 per cent is judged to be appropriate for Jamaica at this time to ensure a range of desired economic outcomes. A lower inflation rate may be associated with weakness in the economy,” the BOJ said.

The BOJ is anticipating that annual inflation will fall below the target at points during the March 2019 quarter and the latter half of fiscal year 2019/20. It added that this near-term outlook reflects the current trends in international commodity prices, potential weakening in global demand and seasonal improvements in domestic agricultural food production.

“The Bank remains committed to fostering conditions that generate an acceleration in economic activity that will return inflation to the target of 4.0 per cent to 6.0 per cent in the medium term. In this context, on 20 December 2018 the Bank lowered the policy interest rate, the rate offered on overnight deposits at BOJ, by 25 basis points to 1.75 per cent,” BOJ said.

The Bank's expectation is that financial institutions will pass on the lower rate to customers, resulting in increased economic activity.

—Karena Bennett

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