Businesses expect more price hikes through to December
Published:Wednesday | November 8, 2023 | 12:06 AM
Businesses expect higher inflation but stable interest rates by the end of this year, according to a new Bank of Jamaica survey.
About 56 per cent of those surveyed think the rate will remain unchanged to December, and that’s up from 48 per cent in the previous survey, according to the BOJ Survey of Businesses Inflation Expectation report.
Within the financial sector, respondents expecting interest rates to remain stable doubled from 30 per cent to 60 per cent.
The survey which canvassed 245 respondents was conducted for the BOJ by the Statistical Institute of Jamaica in August and September. The survey is conducted multiple times per year. The September expectations report is the sixth one year to date. The prior one was in July.
The central bank’s policy interest rate has remained stable for a year at 7.0 per cent with the next rate decision slated for November 21. Up to two years ago, the central bank’s rate sat at 0.5 per cent but rose 14-fold to current levels in order to topple inflation which reached 10-year highs.
Higher interest rates can retard economic activity by making it more expensive to finance business activity and general lending, while making it more attractive to save, which in turn reduces spending.
The 90-day Treasury bill rate yielded 7.8 per cent in September, rising from a low of 0.78 per cent in November 2020, according to BOJ data. Respondents canvassed expect rates to remain level rather than dip any time soon. They continued to express fear of rising utility costs, higher replacement of inventory and raw materials.
“Respondents indicated that they expected the largest increase in production costs over the next twelve months to emanate from utilities, stock replacement, as well as raw materials in that order. Despite recent public discussions of a tightening labour market, wages and salary expense is still anticipated to be the least likely to increase,” the report noted.
The inflation expectation exceeds the central bank’s target range of between 4.0 to 6.0 per cent.
“The September 2023 survey indicated an expected point-to-point inflation of 7.8 per cent for calendar year 2023,” stated the report.
Annual or point-to-point inflation fell back within the target band to close at 5.7 per cent in September. Respondents not only think inflation will rise over the December quarter but will carry on at similar levels to reach 8.0 in September 2024.
Still, even though the expected performance of inflation exceeds the central bank’s target range of 4-6 per cent, it’s actually lower than what respondents forecast in the July survey, which was 8.8 per cent, and much less than the 13 per cent forecast a year earlier.
In other words, “the perception of inflation control improved”, the central bank said.
In early summer, BOJ Governor Richard Byles said inflation would temporarily rise in July and September but dip over the longer term. The BOJ concerns related to agricultural prices, labour costs and communication costs.