Business leaders expect highest inflation in 12 years

Businesses expect inflation to rise over the next 12 months to its highest level in a dozen years, but on the positive side, they think the dollar will largely keep stable, according to a new central bank survey of inflation expectations.

Businesses expect 12-month inflation to inch towards 12.8 per cent by April 2023, according to the survey done for the Bank of Jamaica, BOJ, in April and published this week.

“They expect the largest increase in production costs over the next 12 months to emanate from utilities, stock replacement, as well as fuel & transport, in that order,” the report noted.

The survey is undertaken for the central bank by the Statistical Institute of Jamaica and captures the perception of CEOs, managing directors and financial controllers about the future movement of prices, current and future business conditions, and the expected rate of increase in wages/salaries. The responses assist the central bank in charting future policy decisions, stated the BOJ. The most recent survey was conducted between April 11 and May 9 and had 256 respondents.

Those concerned about fuel and transport doubled in the April survey to 16.8 per cent of respondents, compared to the December survey at 8.2 per cent. The numbers concerned about utilities and stock replacement were basically flat.

The concerns around fuel coincide with the spike in oil and other commodity prices arising from the Russian war on Ukraine and the sanctions placed on Russia, as a result, by European countries and the United States.

Despite geopolitical upheaval, more businesses are blaming the local authorities for higher-than-usual inflation. It’s BOJ’s remit to manage the targeted inflation rate, which is currently bound by law within a 4 to 6 per cent, but is tracking at nearly double the outer band of the target range.

“Businesses’ perception of the authorities’ control of inflation decreased marginally in the April 2022 survey. This was largely due to an increase in the proportion of respondents that were ‘very dissatisfied’ with how inflation is being controlled,” BOJ said.

The last time annual inflation surpassed 12 per cent was back in August 2010, when it hit 12.6 per cent. However, official data shows that annual inflation cooled somewhat after the survey, dipping to 10.9 per cent in May from 11.8 per cent in April.

Historically, businesses did a fair job in predicting inflation 12 months down the line up until 2021. For instance, in April 2019, respondents expected inflation to hit 5.0 per cent over 12 months to April 2020, which was in line with actual inflation a year later. Then in April 2020, respondents expected inflation to hit 7.0 per cent, which was in line with actual outcome. But then businesses misjudged inflation in April 2021, when they thought it would hit 7.0 per cent in April 2022. They missed by about half, inflation having climbed to 11.8 per cent.

Going forward, businesses expect future business conditions to be ‘worse’. The deterioration was reflected in the business conditions index dropping to 133.6 points in April, compared to 148.1 points from the previous survey in March, and also down from roughly 140 points in April 2021.

Looking at the currency markets, most business respondents think the dollar will dip by 2.4 per cent in six months and 3.4 per cent in 12 months, according to the report.

The dollar traded at an average rate of $154.15 to the US dollar at the time of the survey, and the forecasts see the dollar trading at $159 next year. It settled at $152.37 on Wednesday.

business@gleanerjm.com