By McPherse Thompson, Assistant News EditorPRICE INCREASES for basic food items following the budget presentation in April, as well as the impact on general prices of the depreciation in value of the foreign exchange rate, have led to a 10.7 per cent inflation rate for the 12-month period to June, this year.
This was the highest movement since the 9.7 per cent point-to-point rate recorded by the Statistical Institute of Jamaica (STATIN) during the period April 1999 to April 2000.
According to data released by STATIN, the 10.7 per cent movement during the period June 2002 to June 2003 was a significant 4.4 per cent more than the 6.3 per cent recorded for the corresponding period last year.
Economist, Dr. Omri Evans, said the high point-to-point rate meant that with the inflationary effect of the large taxation package announced by Finance and Planning Minister, Dr. Omar Davies, during his budget presentation in April, the inflation rate would now move into double digits.
Noting that the inflation rate was also impacted by the depreciation in the value of the Jamaican dollar against its United States counterpart, Dr. Evans said the country could expect even higher rates in the months ahead, as "the effect of the impact on the budget has not yet worked its way through the economy."
For the time being, however, he said, "the numbers are showing that the effect of the budget, especially the widening of the GCT tax base, as well as the depreciation in the value of the dollar, are impacting the inflation rate."
Data released by STATIN show that inflation was 2.5 per cent in June, the highest monthly movement in the Consumer Price Index since the 2.6 per cent recorded in January 1996.
The inflation rate for May was 1.9 per cent, also representing a two-year high, coming only close to the 1.7 per cent recorded in June 2001, while the April figure was 1.6 per cent.
This means that for the first quarter of the fiscal year 2003/2004, the inflation rate has already reached six per cent. The Ministry of Finance and Planning has set a target of seven per cent for the fiscal year.
Asked about the significance of the 10.7 point-to-point movement, an analyst at STATIN said it could either positively or negatively affect the outcome for the current fiscal and calendar year. Price decreases following the appreciation in value of the currency could mean that the annualised inflation rate would not be as high, said the official. "But yes, there are implications, but we have to look at what is happening on a day to day basis," she added.
Glen Warren, senior risk and research analyst at Guardian Asset Management, told Wednesday Business, "I think it's a cost push inflation as with the exchange rate depreciation, businesses would have been forced to push up their prices."
He explained when the Jamaican dollar depreciated to $72 against its United States counterpart about two months ago, businesses increased prices but when the Bank of Jamaica aggressively intervened in the foreign exchange market, resulting in an appreciation in the currency, most merchants did not readjust their prices and that helped to fuel inflation.
Mr. Warren said that although the point-to-point rate could hover in the 10 per cent band for some time, he was expecting it to fall below that figure unless the local currency "starts to slide again." The outturn would also be dependent on the level of confidence in the economy in the months ahead, he said.
STATIN said that for the month of June, all groups recorded higher indices that in May. There was a 3.9 per cent increase in the index for the 'food and drink' group as a result of increases in the prices for items in the sub-groups 'diary products, oils and fats', which also rose by 3.9 per cent. Baked products, cereal and breakfast drink rose 4.8 per cent, starchy foods increased by 10.6 per cent and other foods and beverages by 4.6 per cent.
The index for the group 'fuels and other household supplies' and 'miscellaneous supplies' each recorded a 0.9 per cent increase, while there was a 1.5 per cent increase in the 'housing and other housing expenses' category. There was also a 1.9 per cent increase in 'other housing expenses', while the index for the group 'healthcare and personal expenses' saw a 1.3 per cent increase.
In setting the seven per cent target for the current fiscal year during his budget presentation, Dr. Davies noted that the inflation rate of 6.2 per cent for the fiscal year 2002/2003 was the seventh consecutive year that the Consumer Price Index has been below 10 per cent.
