Latibeaudiere presides over sound fiscal quarter

BoJ Governor Derick Latibeaudiere

UPBEAT and buoyed by a new 5-year contract, the Governor of the Bank of Jamaica (BoJ) Derick Latibeaudiere gave an overview of the country's financial and economic performance over the last quarter at the BoJ's headquarters at Nethersole Plsace, Kingston, on Wednesday.

Here the Financial Gleaner examines inflation trends and the performance of the productive sector over the last quarter.

INFLATION

A 33 per cent increase in bus fares, which became effective on June 2, pushed the inflation rate much higher than projected for the first quarter of the current financial year, the Bank of Jamaica (BoJ) said.

Inflation for the quarter to June was projected at between 1.4 per cent and 2.0 per cent, but it came in at 2.9 per cent, said the Bank, in its quarterly monetary report.

The figure was 0.6 per cent above the rate recorded for the corresponding period last year, although the BoJ said the 12-month point to point inflation at the end of June 2001 was 7.06 per cent and hence compares favourably with the 8.8 per cent recorded in June 2000.

According to the BoJ, the higher than usual inflation for the quarter and particularly for June, resulted from the 33 per cent increase in bus fares.

The Bank said it had identified, in its March report, the possibility that the escalation in bus fares would have been a major factor in the inflation target.

However, it said "a fare increase was imminent given surges in operating costs." The central bank explained that when fares were last adjusted in the June 1998 quarter, a barrel of crude oil was being sold for US$12.72 compared with US$27.85 per barrel during the same period this year.

That notwithstanding, the BoJ said that based on historical evidence "the recent fare rise is expected to have very marginal second-round impact on inflation in subsequent quarters. This is predicated on the observation that operators of private transport services have moderated their fares in order to compete with the Jamaica Urban Transport Corporation (JUTC)," the state-owned company that operates the public bus system in the Kingston Metropolitan Region (KMR).

Furthermore, said the report, there has been no change in macroeconomic policy, economic fundamentals or the anti-inflation stance of the central bank. "Hence, there is no rationale for anticipating heightened inflationary expectations," the BoJ said.

Despite the effect of the transportation sub-index, the BoJ said several factors assisted in restraining inflation during the quarter, the most prominent being the relative stability of the Jamaican dollar and stable international oil and imported food commodity prices.

The improved stability, particularly since the March quarter, was largely a consequence of strong foreign exchange inflows derived from central government external borrowing, transfers and private capital. Inflationary pressures arising from exchange rate movements were therefore negligible during the quarter.

Domestic inflation during the quarter was also influenced by a marginal reduction in international oil prices from an average per barrel price of US$28.8 to US$27.85, as well as significant declines in the international prices of selected foods imported into Jamaica.

In addition, declining export prices for sugar and lower export volumes for bananas in the European Union market, coupled with market uncertainties, have served to restrain wage demand in these two sub-sectors and contributed to lower wage push inflation, the BoJ said.

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