PROPELLED by higher costs for electricity, food and petrol, consumer inflation jumped 11.3 per cent over the past year, the sharpest spike since the 12 months leading up to December 2010 and likely a harbinger of even higher prices to come.
The inflation reported Tuesday by the Statistical Institute of Jamaica (Statin) reflected the 12 months ending in March and is at a fresh 11-year high. It is also the first month in which statistics have been captured showing the impact of higher prices driven by the war in Ukraine. Since the war, petrol prices in Jamaica have gone up by $10 and are now at record levels. On the global market, oil prices surged in the aftermath of the war, reaching a 30-year high in early March before receding. On Tuesday, oil prices fell about 5 per cent on demand concerns after the International Monetary Fund (IMF) cut its economic growth forecasts and warned of higher inflation.
Brent crude, the global benchmark, fell US$5.91, or 5.22 per cent, to settle at US$107.25 a barrel, while US West Texas Intermediate dropped US$5.65, or 5.22 per cent, to settle at US$102.56 a barrel.
Even before the war further accelerated price increases, persistent supply shortages had sent Jamaica’s inflation to its highest level in a decade. In March alone, prices rose 1.6 per cent — the highest single-month increase in prices since September 2014, when prices rose 2.1 per cent.
“It is keeping with what you are seeing around the world,” said William Mahfood, chairman of the Wisynco Group, in reaction to the inflation numbers. “I mean, look at the United States, they are having record-breaking inflation numbers at a four-decade high.”
Devon Barrett, chief investment officer for the VM Group, had similar sentiments.
“The increase in local inflation is not surprising, given what we have seen around the world,” said Barrett, citing, like Mahfood, what is being seen in the United States.
The Federal Reserve in that country last month started to increase interest rates to stem price increases.
In Jamaica, the central bank has been doing the same, months ahead of the US, and signals it will continue as it tries to bring inflation within its 4 per cent to 6 per cent band “over the next two years”.
“Just today I had a board meeting and we were talking about challenges in getting glass bottles for packaging and the increasing cost of packaging, and that means we are going to have to have another round of price increases,” he warned, saying other companies are facing the same costs and are likely to start increasing prices again, too.
With large areas of China under lockdowns to contain the recurring COVID-19 outbreak in that country, Mahfood warns that there will be even more severe supply challenges globally. “I never thought it would get worse, but it seems like it is going to get worse. Hopefully, the world will see its way out of it in the short term,” said Mahfood. “My anticipation is you will see price increases continue, inflationary pressures will continue until we have a material change in the external shocks which are driving inflation.”
But Mahfood, who told this newspaper last month that he is not in support of the central bank’s interest rate hikes, maintained his opposition.
“Our inflation is not driven by anything local and, in many cases, driven by the war in Europe which has pushed up fuel and commodity prices, as well as the supply chain challenges,” Mahfood told the Jamaica Observer.
But as those issues persist, Barrett says he expects the central bank to continue increasing interest rates as signalled at its last rate decision on March 29.
“Outside of Bank of Jamaica (BOJ), the market has already adjusted in anticipation of higher interest rates. If you look at the six-month Treasury Bill rates, those have gone to 8.5 per cent,” he pointed out.
The BOJ policy rates are now at 4.5 per cent. The central bank meets in mid-May and is expected to announce its decision on interest rates on May 19.