Daraine Luton, Staff Reporter

Reality check: Finance Minister Audley Shaw has admitted that the original inflation target was "overambitious". - File

AUDLEY SHAW, the minister of finance and the public service, has described the inflation projections on which the 2008/2009 Budget was cast as "somewhat overambitious".

Responding to questions tabled in the House of Representatives by Central Kingston Member of Parliament Ronnie Thwaites on Tuesday, Shaw told the House that inflation could reach 16 per cent by year end.

Inflation for the calendar year is 10.3 per cent, the Bank of Jamaica (BOJ) has reported.

The Budget was framed on a projection of an inflation rate of nine per cent and was passed in the House of Representatives despite warnings from Opposition spokesman on finance, Dr Omar Davies.

Shaw tabled a $489-billion Budget in March but Davies, who had spent 14 years as finance minister before the People's National Party lost the September 2007 general election, warned that the treasury was not credible.

Initial projections

On Tuesday, Shaw told the House that the BOJ, the country's central bank, in its initial projections of a nine per cent inflation rate, was, "to put it mildly, somewhat overambitious".

He said, however, that the BOJ has gone back to the drawing board and has come up with a projection of 16 per cent, which he believes will hold true.

"The BOJ was bang on target with regard to its projection for the first half," Shaw said of the BOJ's revised projections.

Davies told Shaw to be careful in terms of making overly optimistic projections.

"This is a statement that I am making in genuine brotherhood," Davies added.

Capital market

"With the hurricanes swirling around out there in the capital market, your credibility is going to be based on whether you present bankable facts," Davies advised, while encouraging Shaw to be more conservative in the future.

Meanwhile, the finance minister, in his response to the tabled questions regarding the impact the inflation spike was having on the government deal with public-sector workers, said there was no need for alarm.

"The current memorandum of understanding is consistent with the latest forecast by the authorities.

"The challenge for the authorities is to ensure that wage demands do not exceed the passive inflation forecast, lest this translate into self-fulfilling prophecy and initiate a wage-led inflation spiral," Shaw added.

daraine.luton@gleanerjm.com