BOJ cuts inflation forecast

Friday, November 02, 2012    

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THE central bank has cut its inflation expectation for this fiscal year by 2.5 percentage points.

Taxes had a lower-than-expected impact on consumer prices up to September, which led the Bank of Jamaica (BOJ) to reduce its projection.

The more favourable outlook relative to the previous forecast also reflects lower than originally anticipated international commodity prices, continued excess capacity and a marginal increase in real wages.

In June, the BOJ increased its inflation outlook from a range of six to eight per cent to a range of 10 to 12 per cent, after the Government announced a series of revenue measures.

Chief among them was the widening of the tax net, which made previously exempted goods and services taxable and which was countered by a lowering of the GCT rate from 17.5 per cent to 16.5 per cent.

After public outcry, the tax on basic food items were rolled back, but a higher import tax was placed on certain meats entering Jamaica's ports.

“The exact outturn, we indicated, would depend upon the extent to which some of these increases were offset by the overall decline in GCT on other goods and services and on the ability of retailers to pass on these increases,” BOJ Governor Brian Wynter said yesterday.

“With September's inflation recently announced by Statin [the Statistical Institute of Jamaica], we can now confirm that very little of the tax increase has been reflected in consumer prices.”

Jamaica's headline inflation for the September 2012 quarter was 2.1 per cent, according to Statin, which mainly reflected the impact of seasonally lower supplies of domestic agricultural commodities.

It also accounted for higher demand associated with the back-to-school preparations and the lagged impact of increases in the prices of international grains as well as some impact from the tax measures.

In addition, the national minimum wage rose from $4,500 for a 40-hour work week to $5,000 during the quarter.

“Therefore, with the half-year inflation rate at 3.6 per cent and based on our outlook for the key drivers of inflation for the remainder of the fiscal year, the BOJ now expects that consumer prices will rise by between 7.5 per cent and 9.5 per cent for FY2012/13,” said Wynter.

“This expectation incorporates our preliminary assessment of the impact on prices of Hurricane Sandy.”

When the central bank publishes its quarterly monetary policy report later this month, “a fuller assessment will be included”.





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