Short-term Inflation analysis and forecast. October 2018 RESEARCH SERVICES DEPARTMENT RESEARCH AND ECONOMIC PROGRAMMING DIVISION

Transcription

1 Short-term Inflation analysis and forecast October 2018 RESEARCH SERVICES DEPARTMENT RESEARCH AND ECONOMIC PROGRAMMING DIVISION

2 c 2018 Bank of Jamaica Nethersole Place Kingston Jamaica Telephone: (876) Fax: (876) Website: ISSN Printed in Jamaica

3 Preface This report reviews recent trends in inflation and presents the outlook for the remainder of the fiscal year. The analysis is based on trends in short-term domestic demand and supply indicators as well as imported inflation. These factors inform the assumptions for the shortterm inflation forecasting model Monthly Inflation Sub-Index Model (MISI). Table of Contents 1.0 Review of Outturn Factors Underpinning the Revised Forecast Trends in demand Trends in supply Import prices Trends in core inflation Revised Forecast 4.0 Summary and Conclusion Appendices Tables and Figures Figure 1: Trend in Monthly Inflation... 1 Figure 2: Regional Inflation... 1 Figure 3: Inflation Contribution... 2 Figure 4: Short-term Indicators of Demand... 3 Figure 5: Industrial Electricity Sales... 4 Figure 6: International Oil Prices... 5 Figure 7: International Grains Prices... 5 Figure 8: Core Inflation (12-month change).. 6 Figure 9: Monthly Inflation Fan Chart... 7 Figure 10: Trends in Selected Agriculture Production... 9

4 Short-term Inflation Analysis and Forecast 1.0 Review of Outturn For October 2018, there was inflation of 0.7 per cent, which compares to 0.4 per cent recorded for October 2017 and average inflation of 0.4 per cent for October of the last five years. Given the October 2018 outturn, annual point-topoint inflation was 4.7 per cent, which is unchanged relative to October 2017 but above the 4.3 per cent outturn as at September 2018 (Figure 1). Figure 1: Trend in Monthly Inflation The outturn for October 2018 was above the 5-year monthly average for October. For October 2018, the Greater Kingston Metropolitan Area (GKMA) recorded higher levels of inflation relative to the Other Urban Centres (OUC) and Rural Areas (RA). The main contributor to the higher inflation in the GKMA was larger increases in the prices of vegetables & starchy foods when compared to the other regions (Figure 2). Figure 2: Regional Inflation October 2018 Research Services Department 1

5 Short-term Inflation Analysis and Forecast The main inflationary pressure for October 2018 resulted from an increase in Food & Non-Alcoholic Beverages (FNB). This stemmed mainly from higher prices for vegetable and starchy foods. This was partially offset by a decline in Housing, Water, Electricity, Gas & Other Fuels (HWEG). Figure 3: Inflation Contribution Inflation for October 2018 primarily reflected increases in vegetable and starchy foods. Blue bars = positive and Red bars = negative MIS= Miscellaneous Goods & Services, R&A=Restaurants & Accommodation Services, ED=Education, R&C=Recreation & Culture, COM=Communication, TRAN= Transport, HLTH=Health, FHERM=Furnishings, Household Equipment & Routine Household Maintenance, HWEG=Housing, Water, Electricity, Gas & Other Fuels, C&F=Clothing & Footwear, ABT=Alcoholic Beverages & Tobacco, FNB=Food & Non- Alcoholic Beverages Source: STATIN October 2018 Research Services Department 2

6 Short-term Inflation Analysis and Forecast 2.0 Factors Underpinning the Revised Forecast 2.1 Trends in demand The main indicators of domestic demand monitored by the BOJ were mixed for the review period. The quarterly change of the 12-month average for the real value of imports is estimated to have decelerated to 1.4 per cent for October 2018 relative to 2.9 per cent in September For October 2018, the estimated quarterly change of the 12- month average of the real value of debit and credit card transactions accelerated to 4.7 per cent relative to 4.4 per cent in the previous month (see Figure 4). Figure 4: Short-term Indicators of Demand The indicators of domestic demand monitored by the BOJ were mixed. October 2018 Research Services Department 3

7 Short-term Inflation Analysis and Forecast 2.2 Trends in supply In October 2018, the change in Vegetables and Starchy Foods sub-division accelerated relative to that in September For November, surveys carried out by the Ministry of Agriculture & Fisheries (MOA) suggested a decline in agricultural prices in all three regions. Surveys by the Consumer Affairs Commission (CAC) also supported the view of a deceleration in prices for November. The quarterly change of the 12-month average trend in industrial electricity sales, used as a proxy for industrial production, decelerated in October 2018 relative to the previous month (see Figure 5). Figure 5: Industrial Electricity Sales Domestic agriculture commodity prices increased significantly (accelerated) in October 2018 relative to September Surveys suggested that prices either decelerated or declined in November. The indicator of industrial productivity decelerated in October October 2018 Research Services Department 4

8 Short-term Inflation Analysis and Forecast 2.3 Import prices For November 2018, oil prices declined by 19.9 per cent to average US$56.69 per bbl. This decline was mainly influenced by (i) the US government s decision to allow some of Iran s top crude oil customers to continue buying oil from the country; (ii) reports of rising crude production from the major oil producing countries; (iii) reports of rising US inventories; (iv) heightened concerns about slowing global economic growth stemming from the US-China trade dispute; and (v) an appreciation of the US dollar. As at 4 December 2018, average oil prices decreased by 6.4 per cent for the month to average US$53.10 per bbl. The continued decline is in part due to investor uncertainty and speculation about OPEC declines at their next decision meeting. Average oil prices have trended downwards since October Figure 6: International Oil Prices Figure 7: International Grains Prices October 2018 Research Services Department 5

9 Short-term Inflation Analysis and Forecast The grains price index fell by 1.7 per cent in November This outturn mainly reflected weighted declines in the prices of hard-wheat and rice by 4.6 per cent and 2.0 per cent respectively. For December 2018 a marginal increase of 1.2 per cent is anticipated in the grains price index. This outturn is expected to mainly reflect weighted increases in the prices of rice and corn by 3.2 per cent and 1.5 per cent, respectively. 2.4 Trends in Core Inflation Two of the three measures of monthly core inflation decelerated in October The CPI without Agriculture & Fuel (CPI-AF) and the CPI without Food and Fuel (CPI-FF) decelerated to 0.18 per cent and 0.15 per cent relative to the previous month. The TRIM mean accelerated marginally to 0.5 per cent from 0.4 per cent. As at October 2018, two annual measures of core inflation remained unchanged relative to September The CPI-FF and CPI-AF remained unchanged at 2.3 per cent and 2.4 per cent, respectively. Conversely, the TRIM increased to 2.2 per cent relative to 1.9 per cent in the previous month. The grains price index declined in November 2018 relative to an increase in October Two measures of annual core inflation remained unchanged for October Figure 8: Core Inflation (12-month change) October 2018 Research Services Department 6

10 Short-term Inflation Analysis and Forecast 3.0 Revised Forecast Monthly inflation is expected to decelerate for November 2018 relative to October. Upward pressures for the month is forecasted to chiefly reflect expansions in FNB. The increase in FNB is due to an expected seasonal increase in processed food prices. Downward pressure is expected to emanate from the HWEG division due to lower electricity costs for the second consecutive month. Downward pressure is also expected from the Transport division due to lower fuel prices at the pumps. Inflation for FY2018/19 is forecasted to fall within the target range of 4.0 per cent to 6.0 per cent. The overall risks are assessed to be generally balanced over the next four quarters (see Figure 9). The major downside risks are that domestic demand conditions could weaken thus providing a downward drag on price increases. In addition, the risks to international commodity prices, particularly crude oil, are assessed to be skewed to the downside. Adverse weather conditions and heightened inflation expectation are the main upside risks. Headline inflation for FY2018/19 is anticipated to fall within the target range of 4.0 per cent to 6.0 per cent. Figure 9: Monthly Inflation Fan Chart October 2018 Research Services Department 7

11 Short-term Inflation Analysis and Forecast 4.0 Summary and Conclusion For October 2018, there was inflation of 0.7 per cent which was primarily driven by an increase in Food & Non-Alcoholic Beverages (FNB) due largely to higher prices for vegetables and starchy foods. This was partially offset by a decline in Housing, Water, Electricity and Gas (HWEG) due primarily to lower electricity rates. A deceleration in the monthly rate of inflation is expected in November 2018, mainly reflecting anticipated declines in HWEG, Transport (TRAN) and moderate price increases in vegetables and starchy foods. Similar decelerations in these items are expected in December For fiscal year 2018/19, inflation is expected to be within the target range. October 2018 Research Services Department 8

12 Short-term Inflation Analysis and Forecast Appendices Figure 10: Trends in Selected Agriculture Production October 2018 Research Services Department 9

13 Short-term Inflation Analysis and Forecast October 2018 Research Services Department 10

14 Table 1A JAMAICA: HEADLINE INFLATION RATES Oct / 3 Month Monthly 3 mth* 3mth# 12 Month* 12 Month# FYTD CYTD C.P.I AVG. C.P.I % change % change % change % change % change % change % change Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct / December 2006 = 100 * Point to Point # Moving average Source: STATIN Page 1 of 12

15 Table 1B JAMAICA: CPI WITHOUT FOOD AND FUEL Oct / 3 Month Monthly 3 mth* 3mth# 12 Month* 12 Month# FYTD CYTD CPI-FF Avg.CPIFF % change % change % change % change % change % change % change Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct /January 2000 = 100 * Point to Point # Moving average Source: BOJ Page 2 of 12

16 Table 1C JAMAICA: CPI WITHOUT AGRICULTURE AND FUEL Oct / 3 Month Monthly 3 mth* 3mth# 12 Month* 12 Month# FYTD CYTD CPI-AF Avg.CPIAF % change % change % change % change % change % change % change Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct /January 2000 = 100 * Point to Point # Moving average Source: BOJ Page 3 of 12

17 Table 1D JAMAICA: CPI WITHOUT AGRICULTURE Oct / 3 Month Monthly 3 mth* 3mth# 12 Month* 12 Month# FYTD CYTD CPI-AF Avg.CPIA % change % change % change % change % change % change % change Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct /January 2000 = 100 * Point to Point # Moving average Source: BOJ Page 4 of 12

18 Table 2 Regional Inflation Oct-MTH GKMA OUC RA Inflation(%) Inflation(%) Inflation(%) 01 FOOD & NON-ALCOHOLIC BEVERAGES Food Bread and Cereals Meat Fish and Seafood Milk, Cheese and Eggs Oils and Fats Fruit Vegetables and Starchy Foods Vegetables Starchy Foods Sugar, Jam, Honey, Chocolate and Confectionery Food Products n.e.c Non-Alcoholic Beverages Coffee, Tea and Cocoa Mineral Waters, Soft Drinks, Fruit and Vegetable Juices ALCOHOLIC BEVERAGES & TOBACCO CLOTHING & FOOTWEAR Clothing Footwear HOUSING, WATER, ELECTRICITY, GAS & OTHER FUELS Rentals for Housing Maintenance and Repair of Dwelling Water Supply and Miscellaneous Services Related to the Dwelling Electricity, Gas and Other Fuels FURNISHINGS, HOUSEHOLD EQUIPMENT & ROUTINE HOUSEHOLD MAINTENAN Furniture and Furnishings (inc. Floor Coverings) Household Textiles Household Appliances Glassware, Tableware and Household Utensils Tools and Equipment for House and Garden Goods and Services for Routine Household Maintenance HEALTH Medical Products, Appliances and Equipment Health Services TRANSPORT COMMUNICATION RECREATION & CULTURE EDUCATION RESTAURANTS & ACCOMMODATION SERVICES MISCELLANEOUS GOODS & SERVICES ALL DIVISIONS Page 5 of 12

19 Table 3A Component Contribution to Inflation Oct Weight in Monthly Weighted % Contrib'n the CPI Inflation(%) Inflation to Inflation 01 FOOD & NON-ALCOHOLIC BEVERAGES Food Bread and Cereals Meat Fish and Seafood Milk, Cheese and Eggs Oils and Fats Fruit Vegetables and Starchy Foods Vegetables Starchy Foods Sugar, Jam, Honey, Chocolate and Confectionery Food Products n.e.c Non-Alcoholic Beverages Coffee, Tea and Cocoa Mineral Waters, Soft Drinks, Fruit and Vegetable Juices ALCOHOLIC BEVERAGES & TOBACCO CLOTHING & FOOTWEAR Clothing Footwear HOUSING, WATER, ELECTRICITY, GAS & OTHER FUELS Rentals for Housing Maintenance and Repair of Dwelling Water Supply and Miscellaneous Services Related to the Dwelling Electricity, Gas and Other Fuels FURNISHINGS, HOUSEHOLD EQUIPMENT & ROUTINE HOUSEHOLD MAINT Furniture and Furnishings (inc. Floor Coverings) Household Textiles Household Appliances Glassware, Tableware and Household Utensils Tools and Equipment for House and Garden Goods and Services for Routine Household Maintenance HEALTH Medical Products, Appliances and Equipment Health Services TRANSPORT COMMUNICATION RECREATION & CULTURE EDUCATION RESTAURANTS & ACCOMMODATION SERVICES MISCELLANEOUS GOODS & SERVICES ALL DIVISIONS Page 6 of 12

20 Table 3B Inflation Comparison Oct-MTH & 2018 Weight in the CPI MTH MTH 01 FOOD & NON-ALCOHOLIC BEVERAGES Food Bread and Cereals Meat Fish and Seafood Milk, Cheese and Eggs Oils and Fats Fruit Vegetables and Starchy Foods Vegetables Starchy Foods Sugar, Jam, Honey, Chocolate and Confectionery Food Products n.e.c Non-Alcoholic Beverages Coffee, Tea and Cocoa Mineral Waters, Soft Drinks, Fruit and Vegetable Juices ALCOHOLIC BEVERAGES & TOBACCO CLOTHING & FOOTWEAR Clothing Footwear HOUSING, WATER, ELECTRICITY, GAS & OTHER FUELS Rentals for Housing Maintenance and Repair of Dwelling Water Supply and Miscellaneous Services Related to the Dwelling Electricity, Gas and Other Fuels FURNISHINGS, HOUSEHOLD EQUIPMENT & ROUTINE HOUSEHOLD MAINTENA Furniture and Furnishings (inc. Floor Coverings) Household Textiles Household Appliances Glassware, Tableware and Household Utensils Tools and Equipment for House and Garden Goods and Services for Routine Household Maintenance HEALTH Medical Products, Appliances and Equipment Health Services TRANSPORT COMMUNICATION RECREATION & CULTURE EDUCATION RESTAURANTS & ACCOMMODATION SERVICES MISCELLANEOUS GOODS & SERVICES ALL DIVISIONS Page 7 of 12

21 Table 5A CYTD Component Contribution to Inflation Jan-Oct Weight in CYTD Weighted % Contrib'n the CPI Inflation(%) Inflation to Inflation 01 FOOD & NON-ALCOHOLIC BEVERAGES Food Bread and Cereals Meat Fish and Seafood Milk, Cheese and Eggs Oils and Fats Fruit Vegetables and Starchy Foods Vegetables Starchy Foods Sugar, Jam, Honey, Chocolate and Confectionery Food Products n.e.c Non-Alcoholic Beverages Coffee, Tea and Cocoa Mineral Waters, Soft Drinks, Fruit and Vegetable Juices ALCOHOLIC BEVERAGES & TOBACCO CLOTHING & FOOTWEAR Clothing Footwear HOUSING, WATER, ELECTRICITY, GAS & OTHER FUELS Rentals for Housing Maintenance and Repair of Dwelling Water Supply and Miscellaneous Services Related to the Dwelling Electricity, Gas and Other Fuels FURNISHINGS, HOUSEHOLD EQUIPMENT & ROUTINE HOUSEHOLD MAINT Furniture and Furnishings (inc. Floor Coverings) Household Textiles Household Appliances Glassware, Tableware and Household Utensils Tools and Equipment for House and Garden Goods and Services for Routine Household Maintenance HEALTH Medical Products, Appliances and Equipment Health Services TRANSPORT COMMUNICATION RECREATION & CULTURE EDUCATION RESTAURANTS & ACCOMMODATION SERVICES MISCELLANEOUS GOODS & SERVICES ALL DIVISIONS Page 8 of 12

22 Table 5B CYTD Inflation Comparison Jan-Oct & 2018 Weight in the CPI CYTD CYTD 01 FOOD & NON-ALCOHOLIC BEVERAGES Food Bread and Cereals Meat Fish and Seafood Milk, Cheese and Eggs Oils and Fats Fruit Vegetables and Starchy Foods Vegetables Starchy Foods Sugar, Jam, Honey, Chocolate and Confectionery Food Products n.e.c Non-Alcoholic Beverages Coffee, Tea and Cocoa Mineral Waters, Soft Drinks, Fruit and Vegetable Juices ALCOHOLIC BEVERAGES & TOBACCO CLOTHING & FOOTWEAR Clothing Footwear HOUSING, WATER, ELECTRICITY, GAS & OTHER FUELS Rentals for Housing Maintenance and Repair of Dwelling Water Supply and Miscellaneous Services Related to the Dwelling Electricity, Gas and Other Fuels FURNISHINGS, HOUSEHOLD EQUIPMENT & ROUTINE HOUSEHOLD MAINTENA Furniture and Furnishings (inc. Floor Coverings) Household Textiles Household Appliances Glassware, Tableware and Household Utensils Tools and Equipment for House and Garden Goods and Services for Routine Household Maintenance HEALTH Medical Products, Appliances and Equipment Health Services TRANSPORT COMMUNICATION RECREATION & CULTURE EDUCATION RESTAURANTS & ACCOMMODATION SERVICES MISCELLANEOUS GOODS & SERVICES ALL DIVISIONS Page 9 of 12

23 Table 6A FYTD Component Contribution to Inflation Apr-Oct Weight in FYTD Weighted % Contrib'n the CPI Inflation(%) Inflation to Inflation 01 FOOD & NON-ALCOHOLIC BEVERAGES Food Bread and Cereals Meat Fish and Seafood Milk, Cheese and Eggs Oils and Fats Fruit Vegetables and Starchy Foods Vegetables Starchy Foods Sugar, Jam, Honey, Chocolate and Confectionery Food Products n.e.c Non-Alcoholic Beverages Coffee, Tea and Cocoa Mineral Waters, Soft Drinks, Fruit and Vegetable Juices ALCOHOLIC BEVERAGES & TOBACCO CLOTHING & FOOTWEAR Clothing Footwear HOUSING, WATER, ELECTRICITY, GAS & OTHER FUELS Rentals for Housing Maintenance and Repair of Dwelling Water Supply and Miscellaneous Services Related to the Dwelling Electricity, Gas and Other Fuels FURNISHINGS, HOUSEHOLD EQUIPMENT & ROUTINE HOUSEHOLD MAINT Furniture and Furnishings (inc. Floor Coverings) Household Textiles Household Appliances Glassware, Tableware and Household Utensils Tools and Equipment for House and Garden Goods and Services for Routine Household Maintenance HEALTH Medical Products, Appliances and Equipment Health Services TRANSPORT COMMUNICATION RECREATION & CULTURE EDUCATION RESTAURANTS & ACCOMMODATION SERVICES MISCELLANEOUS GOODS & SERVICES ALL DIVISIONS Page 10 of 12

24 Table 6B FYTD Inflation Comparison Apr-Oct & 2018 Weight in the CPI FYTD FYTD 01 FOOD & NON-ALCOHOLIC BEVERAGES Food Bread and Cereals Meat Fish and Seafood Milk, Cheese and Eggs Oils and Fats Fruit Vegetables and Starchy Foods Vegetables Starchy Foods Sugar, Jam, Honey, Chocolate and Confectionery Food Products n.e.c Non-Alcoholic Beverages Coffee, Tea and Cocoa Mineral Waters, Soft Drinks, Fruit and Vegetable Juices ALCOHOLIC BEVERAGES & TOBACCO CLOTHING & FOOTWEAR Clothing Footwear HOUSING, WATER, ELECTRICITY, GAS & OTHER FUELS Rentals for Housing Maintenance and Repair of Dwelling Water Supply and Miscellaneous Services Related to the Dwelling Electricity, Gas and Other Fuels FURNISHINGS, HOUSEHOLD EQUIPMENT & ROUTINE HOUSEHOLD MAINTENA Furniture and Furnishings (inc. Floor Coverings) Household Textiles Household Appliances Glassware, Tableware and Household Utensils Tools and Equipment for House and Garden Goods and Services for Routine Household Maintenance HEALTH Medical Products, Appliances and Equipment Health Services TRANSPORT COMMUNICATION RECREATION & CULTURE EDUCATION RESTAURANTS & ACCOMMODATION SERVICES MISCELLANEOUS GOODS & SERVICES ALL DIVISIONS Page 11 of 12

25 Table 7 Annual Component Contribution to Inflation Oct Weight in Annual Weighted % Contrib'n the CPI Inflation(%) Inflation to Inflation 01 FOOD & NON-ALCOHOLIC BEVERAGES Food Bread and Cereals Meat Fish and Seafood Milk, Cheese and Eggs Oils and Fats Fruit Vegetables and Starchy Foods Vegetables Starchy Foods Sugar, Jam, Honey, Chocolate and Confectionery Food Products n.e.c Non-Alcoholic Beverages Coffee, Tea and Cocoa Mineral Waters, Soft Drinks, Fruit and Vegetable Juices ALCOHOLIC BEVERAGES & TOBACCO CLOTHING & FOOTWEAR Clothing Footwear HOUSING, WATER, ELECTRICITY, GAS & OTHER FUELS Rentals for Housing Maintenance and Repair of Dwelling Water Supply and Miscellaneous Services Related to the Dwelling Electricity, Gas and Other Fuels FURNISHINGS, HOUSEHOLD EQUIPMENT & ROUTINE HOUSEHOLD MAINTE Furniture and Furnishings (inc. Floor Coverings) Household Textiles Household Appliances Glassware, Tableware and Household Utensils Tools and Equipment for House and Garden Goods and Services for Routine Household Maintenance HEALTH Medical Products, Appliances and Equipment Health Services TRANSPORT COMMUNICATION RECREATION & CULTURE EDUCATION RESTAURANTS & ACCOMMODATION SERVICES MISCELLANEOUS GOODS & SERVICES ALL DIVISIONS Page 12 of 12