Inflation worry heightens
CONSUMER prices dipped on average in April for the first time in a year on lower electricity rates, but the keenly watched point-to-point figure touched its highest point in 11 and a half years ahead of the Bank of Jamaica’s rate decision later this week.
The Statistical Institute of Jamaica (Statin) recorded that prices are up 11.8 per cent over the last 12 months to April. That’s up from 11.3 per cent in March. The point-to-point inflation up to April is the sharpest spike in prices over a 12-month period since September 2010 and likely a harbinger of even higher prices to come.
In April alone prices recorded an average -0.1 per cent decline, the first dip in average consumer prices in any month since April last year. That decline was triggered by an 8.2 per cent reduction in electricity rates due to lower fuel charges on electricity bills. It was also enough to offset increases recorded for food as the prices of rice, flour, cornmeal, biscuits, chicken meat, beef stew, and salted fish rose in April.
The price of food has gone up 14.6 per cent since April last year. Transport costs also went up in April.
In the last 12 months, the cost of transportation has increased by 15 per cent as fuel prices rose over that period, exacerbated by the war in Ukraine.
On the data released by Statin on Monday, the Bank of Jamaica’s (BOJ’s) monetary policy committee (MPC) will meet this week to consider its next move on interest rates. Since September, the central bank has increased rates five times, pushing its key policy rate from a historic low of 0.5 per cent to 4.5 per cent in March.
“In an absolute term it’s aggressive, given where we are coming from… the interest rate is now nine times where it is coming from [in September last year] and that is aggressive,” David Wan, president of the Jamaica Employers’ Federation told the Jamaica Observer in an interview in late April. Wan was commenting on how quickly the BOJ’s key policy rate has increased.
“[In February] they moved 1.5 per cent, which was big,” he continued.
Wan said he believes the BOJ is walking a fine line trying to contain inflation during a period in which the country is still recovering from the decline induced by the novel coronavirus pandemic.
The MPC is to meet Tuesday and Wednesday to consider interest rates in a market that is still dealing with inflation rates which are almost twice the upper bound of the central bank’s target of four per cent to six per cent.
At its meetings on March 25 and 28, the MPC noted that inflation continued to breach the upper limit of the BOJ’s target range in February 2022 and would continue to breach the target range for a more extended period and at higher rates than previously anticipated.
That note suggested that further rate hikes are to be expected. Further measures are also being pursued by the BOJ to contain Jamaican dollar liquidity expansion and maintain relative stability in the foreign exchange market.
“These measures will cause liquidity conditions to remain tight and interest rates on deposits and loans to rise further, making savings in Jamaican dollars more attractive relative to foreign currency assets and borrowing in Jamaican dollars more expensive,” the central bank added in notes accompanying its rate decision in March.
Already, commercial banks have started to increase rates. Sagicor Bank, JN Bank and NCB Jamaica all have publicly announced rate hikes.
Sagicor, in a release last week, said rates on all existing loans will increase by a maximum of 1.50 per cent on June 27. NCBJ, at its investor briefing held last week, said its rates will start going up towards the end of May for existing customers. Rates on new products have already gone up in March.
JN Bank will increase rates, effective June 9, for existing customers whose loans were disbursed six months prior to the effective date. Affected mortgagors will see rates rise between 0.25 and 0.75 per cent, auto loans will rise by 0.50 per cent, and business loans will go up between 0.50 and 0.75 per cent. The Bank of Nova Scotia (Jamaica) Limited’s website states all existing interest rates on its products will expire on August 15.