JULY 2017 RESEARCH SERVICES DEPARTMENT RESEARCH AND ECONOMIC PROGRAMMING DIVISION

Transcription

1 Short-term Inflation analysis and forecasts JULY 2017 RESEARCH SERVICES DEPARTMENT RESEARCH AND ECONOMIC PROGRAMMING DIVISION

2 c 2017 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 3 Forecast 2.1 Trends in demand Trends in supply Import prices Trends in Core Inflation Revised Forecast Summary and Conclusion 9 Appendices 10 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 8 Figure 10: Trends in selected agriculture 10 production

4 Short term Inflation Analysis and Forecast 1.0 Review of Outturn For July 2017, there was inflation of 0.6 per cent, which compares to inflation of 0.5 per cent recorded for July 2016 and average inflation of 0.6 per cent for July of the last five years. Given the July 2017 outturn, annual point-to-point inflation was 4.5 per cent, above the 2.1 per cent as at July 2016 and the 4.4 per cent outturn as at June Figure 1: Trend in monthly inflation The outturn for July 2017 was in line with the 5-year monthly average for July. For July 2017, the Greater Kingston Metropolitan Area (GKMA) recorded higher levels of inflation relative to the Other Urban Centres (OUC) and the Rural Area (RA). This was mainly due to the higher price increases for Food & Non-Alchoholic Beverages in the GKMA region. Figure 2: Regional Inflation July 2017 Research Services Department 1

5 Short term Inflation Analysis and Forecast Inflation in July 2017 was primarily driven by increases in Food & Non-Alcoholic Beverages (FNB) and Transport (TRAN). The increase in FNB was largely due to the upward movement in the prices of vegetables and starchy foods, due to the continued lagged impact of flood rains which occurred in May In particular, significant price increases were observed for tomato, sweet pepper and yam. Notable increases were also observed for processed foods, particularly for the Meat subgroup. TRAN was higher primarily due to increases in air fares. Inflationary pressure for the month was partly offset by a decline in HWEG due to a reduction in electricity rates. Figure 3: Inflation Contribution Inflation for July 2017 primarily reflected higher vegetable and starchy food prices, as well as increases in air fares. These were partly offset by a reduction in the electricity rates. 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 July 2017 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 real value of imports is estimated to have decelerated by 0.4 per cent for the three months to July For the three months ended May 2017, the 12-month average of the real value of debit and credit card transactions was unchanged at 3.6 per cent (Figure 6). The indicators of domestic demand monitored by the BOJ were mixed. Figure 4: Short-term Indicators of Demand July 2017 Research Services Department 3

7 Short term Inflation Analysis and Forecast 2.2 Trends in supply For July 2017, RADA s forecast had suggested that the supply of most starches and vegetables were increasing relative to the previous month. This would imply the reduction in some food prices. However, the Bank s forecast indicated an acceleration in the rate of price increases as informed by market price surveys. As expected, the prices of vegetable and starchy foods accelerated marginally relative to June Surveys carried out by the Ministry of Agriculture & Fisheries (MOA) and CAC indicated a deceleration in the rate of increase in agricultural prices in August 2017 relative to July Domestic agriculture commodity prices accelerated in July 2017 relative to the previous month. The 12-month average trend in industrial electricity sales, used as a proxy for industrial production decelerated in July 2017 relative to the same measure three months prior (see Figure 5). Figure 5: Industrial Electricity Sales The indicator of industrial productivity decelerated in July July 2017 Research Services Department 4

8 Short term Inflation Analysis and Forecast 2.3 Import prices In July 2017 crude oil prices rose by 3.3 per cent to an average of US$46.68 per bbl. The increase in prices mainly emanated from forecasts by the Energy Information Administration (EIA) which showed lower US production in 2018, as well as news of possible efforts to increase compliance with the ongoing production cuts. In August 2017 crude oil prices rose by 3.0 per cent to an average of US$48.06 per bbl. Price increases mainly stemmed from reports that the Organisation of the Petroleum Exporting Countries had reduced exports to the United States. Upward price pressures also emanated from the market s reaction to US government data which revealed that demand for motor fuel rose for the week ended 28 July Oil prices rose in July and August Figure 6: International Oil Prices Figure 7: International Grains Prices July 2017 Research Services Department 5

9 Short term Inflation Analysis and Forecast For July 2017, the grains price index declined by 1.7 per cent. This outturn mainly reflected reductions of 9.0 per cent and 0.3 per cent in the price of rice and corn respectively. The decline in the grains index was partly offset by an increase of 8.4 per cent in wheat prices. For August 2017, the grains price index is forecasted to decline by 2.2 per cent. This outturn is expected to mainly reflect reductions of 3.5 per cent and 1.5 per cent in the prices of rice and wheat, respectively. The decline in the grains index is expected to be partly offset by an increase of 1.1 per cent in corn prices. The grains price index declined in July 2017 and is expected to further decline in August Trends in Core Inflation For July 2017, monthly CPI without Agriculture and Fuel (CPI- AF) and CPI without Food and Fuel (CPI-FF) remained unchanged at 0.2 per cent and 0.1 per cent respectively. The Trimmed Mean (TRIM) accelerated to 0.4 per cent, relative to 0.3 per cent in the previous month. At end-july 2017, two of three annual point-to-point measures of core inflation accelerated relative to June The CPI-AF and TRIM accelerated to 2.5 per cent and 2.2 per cent, respectively, relative to 2.4 per cent and 1.9 per cent in the previous month. The CPI-FF decelerated to 2.1 per cent compared to 2.2 per cent in the previous month. Two of three measures of annual core inflation accelerated in July 2017 relative to the previous month Figure 8: Core Inflation (12-month change) mth % CPIAF CPIFF TRIM CPI 0 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 July 2017 Research Services Department 6

10 Short term Inflation Analysis and Forecast 3.0 Revised Forecast Inflation for the month of August is forecasted to mainly reflect increases in FNB and TRAN due to increases in nonprocessed food prices stemming from the lagged impact of the May 2017 flood rains, as well as higher petrol rates. Upward pressure is expected to be partly offset by HWEG due to a decline in electricity rates. Headline inflation for FY2017/18 is anticipated to fall within the target range of 4.0 per cent to 6.0 per cent. Inflation in September is anticipated to mainly reflect increases in FNB, Education (EDU) and HWEG. The increases are expected to reflect upward pressure emanating from non-processed food prices, seasonal demand stemming from back to school preparations and higher electricity rates, respectively. Inflation in October is expected to primarily reflect increases in HWEG and FNB due to higher petrol and non-processed food prices. Inflation for FY2017/18 is forecasted to fall within the target range of 4.0 per cent to 6.0 per cent. The overall risks are viewed to be balanced over the next four quarters (see Figure 11). The main upside risks to the inflation forecast are adverse weather, stronger than anticipated demand conditions and higher than anticipated international commodity prices. The major downside risks include quicker than anticipated recovery of the agricultural sector following flood rain damage, lower than projected international commodity prices and weaker than anticipated demand. July 2017 Research Services Department 7

11 Short term Inflation Analysis and Forecast Figure 9: Monthly Inflation Fan Chart July 2017 Research Services Department 8

12 Short term Inflation Analysis and Forecast 4.0 Summary and Conclusion For July 2017, there was inflation of 0.6 per cent which was primarily driven by increases in FNB and TRAN. FNB was higher primarily due to the upward movement in the prices of vegetables and starchy foods. The increase in TRAN was largely due to the impact of higher air fares. Inflationary pressure was partly offset by a reduction in electricity rates in the HWEG division. Inflation for August is forecasted to mainly reflect higher prices for FNB due to the lagged impact of the May 2017 flood rains on food prices and TRAN due to higher petrol prices. Upward pressure is expected to be partly offset by HWEG due to a decline in electricity rates. Inflation in September is anticipated to mainly reflect increases in FNB, EDU and HWEG, as a result of increases in non-processed food prices, seasonal demand stemming from back to school preparations and higher electricity rates, respectively. Inflation in October is expected to primarily reflect increases in HWEG and FNB due to higher petrol and non-processed food prices. Inflation for fiscal year 2017/18 is projected to fall within the target range of 4.0 per cent to 6.0 per cent. July 2017 Research Services Department 9

13 Short term Inflation Analysis and Forecast Appendices Figure 10: Trends in selected agriculture production July 2017 Research Services Department 10

14 Short term Inflation Analysis and Forecast July 2017 Research Services Department 11

15 Table 1A JAMAICA: HEADLINE INFLATION RATES Jul / 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 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 Nov Dec Jan Feb Mar Apr May Jun Jul / December 2006 = 100 * Point to Point # Moving average Source: STATIN July 2017 Research Services Department 12

16 Table 1B JAMAICA: CPI WITHOUT FOOD AND FUEL Jul / 3 Month Monthly 3 mth* 3mth# 12 Month* 12 Month# FYTD CYTD CPI-FF Avg.CPIFF % change % change % change % change % change % change % change 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 Nov Dec Jan Feb Mar Apr May Jun Jul /January 2000 = 100 * Point to Point # Moving average Source: BOJ July 2017 Research Services Department 13

17 Table 1C JAMAICA: CPI WITHOUT AGRICULTURE AND FUEL Jul / 3 Month Monthly 3 mth* 3mth# 12 Month* 12 Month# FYTD CYTD CPI-AF Avg.CPIAF % change % change % change % change % change % change % change 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 Nov Dec Jan Feb Mar Apr May Jun Jul /January 2000 = 100 * Point to Point # Moving average Source: BOJ July 2017 Research Services Department 14

18 Table 1D JAMAICA: CPI WITHOUT FUEL Jul / 3 Month Monthly 3 mth* 3mth# 12 Month* 12 Month# FYTD CYTD CPI-F Avg.CPIA % change % change % change % change % change % change % change 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 Nov Dec Jan Feb Mar Apr May Jun Jul /January 2000 = 100 * Point to Point # Moving average Source: BOJ July 2017 Research Services Department 15

19 Table 2 Regional Inflation Jul-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 July 2017 Research Services Department 16

20 Table 3A Component Contribution to Inflation Jul 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 July 2017 Research Services Department 17

21 Table 3B Inflation Comparison Jul-MTH & 2017 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 July 2017 Research Services Department 18

22 Table A CYTD Component Contribution to Inflation Jan-Jul 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 July 2017 Research Services Department 19

23 Table B CYTD Inflation Comparison Jan-Jul & 2017 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 July 2017 Research Services Department 20

24 Table 5A FYTD Component Contribution to Inflation Apr-Jul 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 July 2017 Research Services Department 21

25 Table 5B FYTD Inflation Comparison Apr-Jul & 2017 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 July 2017 Research Services Department 22

26 Table 6 Annual Component Contribution to Inflation Jul 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 July 2017 Research Services Department 23