By Andrew Green, Staff ReporterJAMAICA'S RELATIVELY modest 0.5 per cent inflation in September has caught many analysts off guard.
Despite high international petroleum prices and back-to-back hurricanes in August and September, inflation for the calendar year to September was 6.7 per cent. This amounted to 3.7 percentage points below the level for the corresponding period in 2003.
"I was very surprised," said economist Errol Gregory, when asked about the September outcome. He said that even that even Government spokesmen had been hinting that inflation could come in higher than the targeted nine per cent this year.
Early in September, Derick Latibeaudiere, governor of the Bank of Jamaica, pointed out that, "The major risk to our inflationary expectations continues to be the price of oil."
"Oil prices have climbed higher since then with serious consequences for the economy, but this is not fully reflected in the inflation figures," said economist Dr. Omri Evans.
The problem is that the method of measuring inflation is based on the results of a 1984 household expenditure survey and spending patterns have been transformed since then.
"The week after Ivan (hit Jamaica) domestic farm produce prices started rising," Dr. Evans said.
The price of yellow yam nearly doubled and there was a similar pattern for green bananas.
"Anybody who goes to the market feels it," Dr. Evans said. "I don't see how the 0.5 per cent movement in the September Consumer Price Index is a realistic figure."
Jamaica Money Market Brokers Limited (JMMB) research analyst, Jason Morris, disagreed: "I was expecting (September inflation) a bit higher," Mr. Morris said. But the relatively low figure is not a complete surprise. People are expecting a spike in food prices after Hurricane Ivan because they do not remember the impact of Hurricane Charley the month before,"
The previous hurricane early in August caused inflation to reach 1.3 per cent in that month, the highest level for the year.
Agriculture in the parishes of Manchester, St. Elizabeth, Westmoreland and Hanover was devastated, with St. Elizabeth the worst-hit. "Food prices rose because of Charley," Mr. Morris said. "You would not have had a higher inflation rate after August because prices would not increase exponentially."
"It now appears that the Government may come closer to its 9 per cent inflation target than many had expected," Mr. Gregory said. "This quarter of the fiscal year should see the usual strong Christmas demand, but in the fourth quarter, prices are normally low after Christmas as pent up demand is taken out of system.
We could get close to 10 per cent (inflation) for fiscal year," Mr. Morris said. There might be a, "blip in food prices for October, and then we should be back to normal."
In fact there might have a lower than expected rate as agriculture recovers and imports flow in to satisfy the country's food needs, Mr. Morris said. Duties have been reduced on some agricultural imports and this could depress domestic prices.
"So now inflation is not really a problem," the JMMB analyst said.
