Short-term Inflation Analyses and Forecast

Transcription

1 Inflation Analyses and Forecast March 2018 Research Services Department

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 Summary and Conclusion 8 Appendices 9 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 1.0 Review of Outturn For March 2018, there was a deflation of 0.1 per cent, which compares to inflation of 0.4 per cent recorded for March 2017 and average inflation of 0.6 per cent for March of the last five years. Given the March 2018 outturn, annual pointto-point inflation was 3.9 per cent, below the 4.1 per cent as at March 2017 and the 4.4 per cent outturn as at February 2018 (Figure 1). Figure 1: Trend in Monthly Inflation The outturn for March 2018 was below with the 5-year monthly average for March. For March 2018, the Greater Kingston Metropolitan Area (GKMA) exhibited deflationary pressure due mainly to a larger decline in the Food & Non-Alchoholic Beverages (FNB) division. Inflation in the Other Urban Centres and the Rural Areas was moderate. Figure 2: Regional Inflation March 2018 Research Services Department 1

5 The deflationary pressure for March 2018 resulted from a reduction in Food & Non-Alchoholic Beverages (FNB). This stemmed from a decline in prices for vegetables and starchy foods, due to a recovery of agricultural supplies following the impact of adverse rainfall in October/November This was offset by inflationary impulses primarily reflected in Housing, Water, Electricity, Gas & Other Fuels (HWEG) due to higher electricity rates. Figure 3: Inflation Contribution Deflation for March 2018 primarily reflected reductions in the prices of vegetables 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 March 2018 Research Services Department 2

6 2.0 Factors Underpinning the Revised Forecast 2.1 Trends in demand The main indicators of domestic demand showed mixed results for the review period. The quarterly change 12- month average of the real value of imports is estimated to have accelerated to 1.8 per cent for March 2018 relative to 1.6 per cent in February For March 2018, the estimated quarterly 12-month average change in the real value of debit and credit card transactions decelerated to 2.6 per cent relative to 3.8 per cent in the previous month (see Figure 4). Figure 4: Short-term Indicators of Demand The main indicators of domestic demand monitored by the BOJ showed mixed results. March 2018 Research Services Department 3

7 2.2 Trends in supply In March 2018, the decline in the Vegetables and Starchy Foods sub-division was faster relative to the reduction in February Surveys carried out by the Ministry of Agriculture & Fisheries (MOA) and the Consumer Affairs Commission (CAC) in February 2018 had suggested a slower pace of decline. For April 2018, the surveys suggested further declines in agricultural prices. The quarterly change of the 12-month average trend in industrial electricity sales, used as a proxy for industrial production, improved in March 2018 relative to the previous month (see Figure 5). Domestic agriculture commodity prices declined in March 2018 relative to February Figure 5: Industrial Electricity Sales The indicator of industrial productivity advanced in March March 2018 Research Services Department 4

8 2.3 Import prices For March 2018, oil prices rose by 0.9 per cent to average US$62.77 per bbl. This increase was mainly influenced by (i)_news of rising geopolitical tensions in the Middle East, (ii)_statements made by the Saudi Arabian Energy Minister which highlighted that the Organization of the Petroleum Exporting Countries (OPEC) would need to continue coordinating with non-opec producers on supply cuts in 2019 and (iii) speculation of further reductions in Venezuelan crude production. Oil prices rose in March and April For April 2018, oil prices rose by 5.5 per cent to average US$66.21 per bbl. This increase was mainly influenced by (i)_renewed investor optimism that a trade dispute between the US and China may be resolved as US officials softened its tone on US-China trade relations and (ii)_speculation about escalating geopolitical tensions in the Middle East. Figure 6: International Oil Prices Figure 7: International Grains Prices March 2018 Research Services Department 5

9 For March 2018, the grains price index rose by 2.1 per cent. This outturn mainly reflected a weighted increase in the prices of soft wheat and corn by 4.4 per cent and 5.3 per cent, respectively. For April 2018, the grains price index is expected to rise by 2.1 per cent. This outturn is expected mainly to reflect a weighted increase in the prices of hard wheat and rice by 5.2 per cent and 2.4 per cent, respectively. 2.4 Trends in core inflation For March 2018, the monthly change in both the CPI without Agriculture & Fuel (CPI-AF) and the CPI without Food and Fuel (CPI-FF) were 0.1 per cent, a deceleration relative to 0.3 per cent, for both measures, in the previous month. The Trimmed Mean (TRIM) declined to -0.2 per cent relative to -0.1 per cent in the previous month. As at March 2018, two of three annual point-to-point measures of core inflation, CPI-AF and CPI-FF, were unchanged relative to February The CPI-AF and CPI-FF were 2.6 per cent, 2.3 per cent, respectively. The TRIM decelerated to 1.9 per cent relative to 2.2 per cent in the previous month. The grains price index advanced for March 2018 and is expected to further advance in April Two of the three measures of annual core inflation were unchanged in March 2018 relative to the previous month. Figure 8: Core Inflation (12-month change) March 2018 Research Services Department 6

10 3.0 Revised Forecast Further deflation is expected for April The decline in the CPI for the month is forecasted to reflect reductions in HWEG and FNB. The decline in HWEG is due to expected lower electricity costs for the month. Downward pressure from FNB is anticipated due to persistent declines in nonprocessed food prices. The rate of decline however is expected to be less than in the previous month. TRAN is expected to reflect an increase in petrol prices. Inflation in May and June 2018 is anticipated to mainly reflect increases in the costs of utilities, petrol and non-processed food prices. Headline inflation for FY2018/19 is anticipated to fall within the target range of 4.0 per cent to 6.0 per cent. 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 balanced for the next four quarters (see Figure 9). The major downside risks include persistently lower prices of nonprocessed food in the agricultural sector and weaker than anticipated demand. The main upside risks to the inflation forecast are higher than anticipated international grain and oil prices and adverse weather. Figure 9: Monthly Inflation Fan Chart March 2018 Research Services Department 7

11 3.0 Summary and Conclusion For March 2018, there was a deflation of 0.1 per cent as increases in Housing, Water, Electricity and Gas (HWEG) was offset by lower prices for non-processed foods and transportation services. Further deflation is expected in April 2018, mainly reflecting anticipated decreases in HWEG and continued declines in vegetables and starchy foods. Inflation in May 2018 is anticipated to mainly reflect increases in the costs of utilities, petrol and the prices of nonprocessed food. For fiscal year 2017/18, inflation was just below the target range of 4.0 per cent to 6.0 per cent. For fiscal year 2018/19, inflation is expected to remain towards the lower end of the forecast range for the next three quarters before converging towards the mid-point of the forecast range. March 2018 Research Services Department 8

12 Appendices Figure 10: Trends in Selected Agriculture Production March 2018 Research Services Department 9

13 March 2018 Research Services Department 10