BANK of Jamaica (BoJ) Governor Brian Wynter has confirmed that the 2.6 per cent inflation recorded for the quarter ending June 2010 was well below the 4.1 per cent for the previous March quarter, as well as falling behind the 3.5 per cent average for the five previous June quarters.

Wynter said that inflation during the quarter was largely influenced by the administrative price adjustment of bus fares within the Kingston Metropolitan Area (KMA). However, he said that inflationary pressures also emanated from the impact of drought conditions in the first four months of the year, which led to higher vegetable prices.

“The decline in inflation occurred in spite of the significant impact of the increase in bus fares in April. Because of the increase in fares, transportation accounted for 81.2 per cent of the 1.3 per cent inflation in April,” Wynter told journalists and financial sector stakeholders at the central bank’s quarterly press briefing in downtown, Kingston.

He added, however, that this was moderated, over the review period, by lower imported commodity prices, appreciation in the exchange rate and weak consumer demand. In particular, the price of crude oil declined by 7.4 per cent.

“Concurrently, the prices of soybean, corn and wheat fell in the context of high inventories and increased production,” the BoJ head explained.

Meanwhile, the central bank governor said the Bank is forecasting further reduction in headline inflation, relative to the March and June 2010 quarters, to a range of 1.5 per cent to 2.5 per cent.

“The inflation forecast for the September quarter is also lower than the average rate of 3.8 per cent for the previous five September quarters,” he stated.

Wynter noted that contributing to this lower projected inflation out-turn were the expectations of stable capacity conditions, declining inflation expectations and stability in the foreign exchange market.

As it relates to domestic inflation for the 2010/11 fiscal year, he said that it is anticipated that this will be in the lower bound of the target range of 7.5 per cent to 9.5 per cent.

“The projection is underpinned by continued low consumer demand and a stable exchange rate. The risks to the inflation projection are balanced. The upside risks include adverse weather conditions which could affect domestic production. The downside risks include greater than expected reductions in real incomes,” he outlined.

Turning to the real sector, he said that while there are signs of recovery, economic activity remained weak during the June quarter, with real Gross Domestic Product (GDP) estimated to have declined in the range of 0.0 per cent to 1.0 per cent. He noted that this was a marginally slower pace of contraction than the one per cent recorded in the March 2010 quarter.

“Both tradeable and non-tradeable industries were estimated to have recorded slower rates of contraction,” Wynter said.

He also pointed out that the resumption of growth in mining and quarrying, transportation, storage, and communication were major contributors to this improvement. However, he said domestic demand remained weak due to increased unemployment and lower real income.