Coronavirus among global risks to inflation, growth – BOJ
A coronavirus, recently named COVID-19, has infected more than 70,000 people globally since it was first reported in late 2019. The spread of the disease has resulted in production stalling in China with global supply chains also affected. (AP Photo)
Emerging risks within the global and domestic economy could have implications for inflation, says Bank of Jamaica (BOJ) Governor Richard Byles.
The risks largely stem from weather-related concerns and global health emergencies such as the coronavirus.
Consequently, economic growth may be lower than expected.
Speaking on Thursday at the BOJ Quarterly Monetary Policy Report press conference, Byles said the central bank is projecting growth in the range of 0.5 per cent to 1.5 per cent for 2020.
BOJ Governor Richard Byles
According to Byles, the continued spread of the novel coronavirus mainly poses a downside risk to inflation, as international oil prices would likely decline and global and domestic growth could be lower than expected.
A coronavirus, recently named COVID-19, has infected more than 70,000 people globally since it was first reported in late 2019. The spread of the disease has resulted in production stalling in China with global supply chains also affected.
The International Monetary Fund (IMF) has named the global health emergency as the biggest risk nations are now facing, citing the prospect for economic growth as “fragile,” as a result.
The impact on inflation and domestic production in Jamaica is yet to be seen.
Commenting on the risk of extreme weather conditions on the Jamaican economy, the central bank governor said this could result in increased volatility in agricultural prices.
Byles noted that higher inflation could also arise from imported inflation if global growth is stronger than anticipated in the context of easing international trade tensions between the USA and China.
Governor Byles noted that in the Statistical Institute of Jamaica’s (STATIN) latest report revealed that prices faced by consumers in Jamaica, on average, rose by 5.2 per cent for the year leading up to January 2020.
This outturn represents a reduction from the 6.2 per cent recorded at December 2019 and reflects a return of inflation to the target range of between four and six per cent.
Noting that the inflation spike in December 2019 was temporary, the BOJ governor said the slower pace of inflation in January 2020 mainly reflected the impact of lower electricity rates, some reversals in agricultural food prices as well as lower costs for petrol and air travel.
Of note, price increases that exclude the influence of agricultural food and fuel prices (otherwise known as core or underlying inflation) remained low, just above 3.0 per cent for the year to January 2020.
Byles outlined that some moderation in the rate of increase in agricultural food prices is expected in February.
He noted nonetheless: “we anticipate that headline inflation will be high for the month due to a temporary spike in electricity rates.”
Looking further ahead, the BOJ expects that the annual rate of consumer price increases will average about 4.7 per cent over the next eight quarters.
The outlook for inflation is based on the stimulating effects of the bank’s past monetary accommodation on prices, as well as imported inflation.
The impact on inflation of these developments is expected to be partially offset by continued tight fiscal policy.