Bank of Jamaica cuts inflation target
Published:Sunday | August 29, 2010 | 12:00 AM
The Bank of Jamaica has revised fiscal-year inflation targets downward, to between 6.0 and 8.0 per cent on a more optimistic outlook on commodity prices, and expectations that the local economy will pick up steam in the months ahead.
Grossdomestic product(GDP) contracted 0.8 per cent in the June quarter and 0.9 per cent in the half-year period, but forecasts for the September period are somewhere between flat growth and a potential uptick in GDP by 1.0 per cent.
The bank's revision came on the same day that the International Monetary Fund announced officially that Jamaica had passed the June test.
Inflation was initially forecast at 7.5 per cent to 9.5 per cent.
For the first four months of the fiscal year, as at July, fiscal inflation outturn was 3.0 per cent.
The central bank's upbeat estimate on prices comes amid uncertainties in the United States and Europe, Jamaica's biggest trading partners.
Volatile price changes
"Economic results as at August 2010 suggest that the global economic recovery could be slower than the consensus forecasts at the start of the fiscal year. This slower recovery and the uncertainty surrounding the health of the European economy have resulted in volatile changes in international commodity prices, in particular crude oil prices," the Bank of Jamaica (BOJ) said on Friday.
"Despite this instability, commodity prices are currently projected to increase, on average, by less than previously expected."
The central bank cautioned, however, that risks to its more optimistic inflation forecast include adverse weather, decline in consumer demand for local goods, and unstable commodity prices.
Slower global growth
The BOJ said the data on slower global growth is supported by trends in imported inflation, which have taken a downward shift relative to their original forecast.
"This has been due to the appreciation in the exchange rate and the lower-than-anticipated increase in global commodity prices."
The JMD has risen 4.3 per cent in value year to date because of a supply cushion from private- capital inflows.
The bank also said domestic output was primed for expansion - given that policy rates were at their lowest since the mid-1980s and Government was not as big a competitor for capital — and that the real sector was performing to its expectations.
"Given the current reduction in aggregate consumption levels, output expansions over the medium term should not be inflationary," the central bank said.