Businesses more optimistic but expect faster dollar devaluation

STEVEN JACKSON Business reporter

Wednesday, April 23, 2014    

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BUSINESSES were more optimistic towards the end of the last fiscal year despite fears of a faster depreciating currency.

The latest Inflation Expectation Survey, which was conducted by the Bank of Jamaica (BOJ) in February, showed that optimism was at its highest level since April 2013, even with the Jamaican dollar at record lows.

Respondents to the survey said that they expect 7.6 per cent depreciation in the exchange rate over the 12 months to February 2015. That puts the dollar at roughly $115 to US$1.

Comparatively, respondents expected the dollar to slide some 6.1 per cent over 12 months in the previous survey conducted in November.

The survey had 250 respondents including chief executive officers, managing directors and financial controllers and was conducted in February by the Statistical Institute of Jamaica on behalf of the BOJ.

The dollar which trades at $109.95 to US$1 lost some 15 per cent of its value in 2013. The currency movement is an implicit conditionality of a loan agreement between the International Monetary Fund and Government.

The island's debt stock nearly hit $2 trillion, or approximately 132 per cent of the nation's output at the end of financial year 2013/14, mainly due to the dollar slide, according to the Fiscal Policy Paper (FPP) tabled by Minister of Finance and Planning Dr Peter Phillips in the House of Representatives last Thursday.

Despite the negatives of depreciation the perceptions about present and future business conditions improved in the most recent survey relative to the previous survey.

"Notably, the perception of present and future business conditions has indicated a general upward trend since the April 2013 survey,"

said the BOJ.

The central bank conducts the Inflation Survey to gauge market sentiment within the context of it using monetary policy to influence inflation and currency movements.

Respondents expect inflation to hit 11 per cent this calendar year or above the 9.5 per cent recorded in 2013, according to the survey.

Jamaica has over the last decade consistently ranked in the top five in regard to highest inflation rates in the entire Americas, which includes a comparison of some 34 nations, based on data from the Economic Commission for Latin America

and the Caribbean (ECLAC), a United Nations body.

The BOJ estimates that inflation was marginally below the target range of 8.5 per cent to 10.5 per cent for fiscal year just ending 2013/14, according to a separate BOJ publication entitled the Inflation Preliminary Tables.

"The overall risks to the estimate are perceived to be balanced. The main upside risk is a stronger than expected pass "through of depreciation to prices. On the downside, the major risk is weaker than expected domestic demand conditions," stated the BOJ preliminary tables .

The BOJ explained that lower raw food and electricity prices aided in waning the inflation estimates.

"For February 2014, the inflation out-turn was below the Bank's projection. The main component contributor to inflation in February

was food & non-alcoholic beverages which primarily reflected an increase in the prices of processed foods. The impact of this increase was, however, partly offset by declines in the costs of raw foods and electricity. In this regard, the Bank's estimate indicates that inflation for FY2013/14 was below the target range of 8.5 per cent to 10.5 per cent", stated the BOJ.

The survey also found that the perception of inflation control worsened in the February 2014 survey relative to the previous survey. The BOJ asked, how satisfied are you with the way inflation is being controlled by the Government?

"The February 2014 survey reflected a significant deterioration in businesses' perception of inflation control by the authorities when compared to the previous survey," said the BOJ report. "Specifically, the index of inflation control declined to 106.0 from 149.1 in the December 2013 survey. This downturn mainly reflected a decline in the number of respondents who were 'satisfied' with the authority's control of inflation. Additionally, the number of respondents who were 'dissatisfied' and 'very dissatisfied' increased relative to the previous survey."

It indicated that 40 per cent of respondents were dissatisfied and a further 27.6 per cent were very dissatisfied.





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