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

Transcription

1 Short-term Inflation analysis and forecast August 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 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 Short-term Inflation Analysis and Forecast 1.0 Review of Outturn For August 2018, there was inflation of 0.9 per cent, which compares to 0.3 per cent recorded for August 2017 and average inflation of 0.6 per cent for August of the last five years. Given the August 2018 outturn, annual point-to-point inflation was 3.9 per cent, below the 4.4 per cent as at August 2017 but above the 3.2 per cent outturn as at July 2018 (Figure 1). Figure 1: Trend in Monthly Inflation The outturn for August 2018 was above the 5-year monthly average for August. For August 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 higher price increases for selected processed foods when compared to the other regions (Figure 2). Figure 2: Regional Inflation August 2018 Research Services Department 1

5 Short-term Inflation Analysis and Forecast The main inflationary pressure for August 2018 resulted from an increase in Food & Non-Alcoholic Beverages (FNB). This stemmed mainly from higher prices for selected fruits, vegetables and starchy foods for the month. This was supported by an increase in Furnishings, Household Equipment & Routine Household Maintenance (FHERM) due to an increase in the National Minimum Wage. Figure 3: Inflation Contribution Inflation for August 2018 primarily reflected increases in vegetables and starchy food. 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 August 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 accelerated to 4.2 per cent for August 2018 relative to 3.7 per cent in July For August 2018, the estimated quarterly change of the 12-month average of the real value of debit and credit card transactions decelerated to 3.7 per cent relative to 4.2 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. August 2018 Research Services Department 3

7 Short-term Inflation Analysis and Forecast 2.2 Trends in supply In August 2018, the Vegetables and Starchy Foods subdivision increased significantly relative to July This was consistent with surveys carried out by the Ministry of Agriculture & Fisheries (MOA) which had suggested an increase in prices, albeit by a smaller magnitude. Surveys by the Consumer Affairs Commission (CAC) also suggested increases in August relative to July. The survey outlook for September is for a deceleration in the rate of price increases for these commodities. The quarterly change of the 12-month average trend in industrial electricity sales, used as a proxy for industrial production, accelerated in August 2018 relative to the previous month (see Figure 5). Figure 5: Industrial Electricity Sales Domestic agriculture commodity prices increased in August 2018 relative to July The indicator of industrial productivity accelerated in August August 2018 Research Services Department 4

8 Short-term Inflation Analysis and Forecast 2.3 Import prices For August 2018, oil prices fell by 3.9 per cent to average US$67.85 per bbl. This decline was mainly influenced by (i)_the Energy Information Administration s (EIA) report which showed a larger than anticipated increase in US crude oil inventories for the week ended 10 August 2018; (ii) investors reaction to escalating trade war between China and the United States. As at 27 September 2018, oil prices rose by 2.9 per cent to average US$69.78 per bbl. This increase was mainly influenced by (i) an uptick in gasoline demand amid concerns relating to Hurricane Florence; (ii) investors reaction to OPEC and non-opec major oil producers decision to not commit to an additional increase in crude oil output at their meeting in Algiers on 23 September Oil prices declined in August but is expected to increase in September Figure 6: International Oil Prices Figure 7: International Grains Prices August 2018 Research Services Department 5

9 Short-term Inflation Analysis and Forecast The grains price index rose by 4.1 per cent in August This outturn mainly reflected weighted increases in the prices of hard-wheat, soft-wheat and corn prices by 8.4 per cent, 5.1 per cent and 3.8 per cent, respectively. For September 2018 a decline of 5.6 per cent is anticipated in the grains price index. This outturn is expected to mainly reflect weighted declines in the prices of hard-wheat, softwheat and corn prices by 9.9 per cent, 9.2 per cent and 6.7 per cent, respectively. 2.4 Trends in Core Inflation All measures of monthly core inflation accelerated in August The CPI without Agriculture & Fuel (CPI-AF), CPI without Food and Fuel (CPI-FF) and the Trimmed Mean (TRIM) accelerated to 0.3 per cent, 0.5 per cent and 0.4 per cent relative to 0.2 per cent, 0.2 per cent and 0.3 per cent in the previous month. As at August 2018, all three annual point-to-point measures of core inflation accelerated relative to July The CPI- AF, CPI-FF and TRIM accelerated to 2.4 per cent, 2.4 per cent and 1.8 per cent respectively, relative to 2.3 per cent, 2.1 per cent and 1.5 per cent in the previous month. Figure 8: Core Inflation (12-month change) The grains price index advanced in August 2018 relative to a decline in July All three measures of annual core inflation accelerated in August 2018 relative to the previous month. August 2018 Research Services Department 6

10 Short-term Inflation Analysis and Forecast 3.0 Revised Forecast Inflation is expected to decelerate for September The increase in the CPI for the month is forecasted to chiefly reflect expansions in HWEG and FNB. The increase in HWEG is due to expected higher electricity costs for the month. Upward pressure from FNB is also anticipated due to expected increases in non-processed food prices. Upward pressure is also expected due to seasonal increases in school fees. Inflation in October 2018 is anticipated to mainly reflect increases in the costs of utilities and petrol, as well as further increases in food prices. 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 skewed to the upside for the next four quarters (see Figure 9). The main upside risk to the forecast is adverse weather and higher than anticipated international commodity prices. The major downside risks include weaker than anticipated demand. Figure 9: Monthly Inflation Fan Chart Headline inflation for FY2018/19 is anticipated to fall within the target range of 4.0 per cent to 6.0 per cent. August 2018 Research Services Department 7

11 Short-term Inflation Analysis and Forecast 3.0 Summary and Conclusion For August 2018, there was inflation of 0.9 per cent as a rise in Food & Non-Alcoholic Beverages (FNB) due primarily to higher prices for selected vegetable and starchy foods, was supported by an increase in Furnishings, Household Equipment & Routine Household Maintenance (FHERM) due to an increase in the National Minimum Wage. A deceleration in the monthly rate of inflation is expected in September 2018, mainly reflecting anticipated increases in HWEG and moderate price increases in vegetables and starchy foods. Similar increases in these items are expected in October For fiscal year 2018/19, inflation is expected to be within the target range. August 2018 Research Services Department 8

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

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

14 Table 1A JAMAICA: HEADLINE INFLATION RATES Aug / 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 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 Nov Dec Jan Feb Mar Apr May Jun Jul Aug / December 2006 = 100 * Point to Point # Moving average Source: STATIN Page 11

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

16 Table 1C JAMAICA: CPI WITHOUT AGRICULTURE AND FUEL Aug / 3 Month Monthly 3 mth* 3mth# 12 Month* 12 Month# FYTD CYTD CPI-AF Avg.CPIAF % change % change % change % change % change % change % change 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 Nov Dec Jan Feb Mar Apr May Jun Jul Aug /January 2000 = 100 * Point to Point # Moving average Source: BOJ Page 13

17 Table 1D JAMAICA: CPI WITHOUT FUEL Aug / 3 Month Monthly 3 mth* 3mth# 12 Month* 12 Month# FYTD CYTD CPI-F Avg.CPIF % change % change % change % change % change % change % change 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 Nov Dec Jan Feb Mar Apr May Jun Jul Aug /January 2000 = 100 * Point to Point # Moving average Source: BOJ Page 14

18 Table 2 Regional Inflation Aug-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 15

19 Table 3A Component Contribution to Inflation Aug 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 16

20 Table 3B Inflation Comparison Aug-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 17

21 Table A CYTD Component Contribution to Inflation Jan-Aug 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 18

22 Table B CYTD Inflation Comparison Jan-Aug & 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 19

23 Table A FYTD Component Contribution to Inflation Apr-Aug 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 20

24 Table B FYTD Inflation Comparison Apr-Aug & 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 21

25 Table 6 Annual Component Contribution to Inflation Aug 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 22