WEST Texas intermediate benchmark pricing for crude was a low of US$42.63 per barrel yesterday and Wall Street analysts continue to predict a further slump into the new year. But the Bank of Jamaica (BOJ) is convinced otherwise.
The bank said in its latest quarterly monetary policy report (QMPR) that prices of international commodities, particularly crude oil, are projected to reflect some modest increases, starting in the December 2015 quarter, contributing to an increase in domestic inflation over the near term; a consequence of gradual improvement in global demand conditions as well as a reduction in shale production by the United States of America.
The BOJ indicates that it expects inflation to pick up in both the December 2015 and March 2016 quarters to end fiscal FY2015/16 within the target range of 5.5 per cent to 7.5 per cent, a forecast mainly based on a projected surge in food and oil prices.
Price declines in electricity and fuel resulted in deflation in energy and transport for the September 2015 quarter, largely reflecting the impact of the reduction in crude oil prices.
Headline inflation at the end of the September quarter fell to 1.8 per cent compared to 4.4 per cent at the end of the preceding quarter.
“The reduction largely reflected declines in the cost associated with energy and transport, while agriculture and processed foods prices increased at a slower pace,” the BOJ stated.
However, the BOJ thinks oil price increases will change the trajectory. It is the bank’s assessment that there will be an uptick in the price of crude oil in the last quarter of the fiscal year.
Additionally, year-end inflation will also be affected by prices of domestic agricultural commodities which the bank expects to increase in December due to the recent dry conditions.
Meanwhile, the bank is also predicting that inflation from agricultural commodities will be reduced in the latter part of the December 2015 quarter as drought conditions improve with concurrent price reversals in the March 2016 quarter.