Food replaces transport as inflation driver, says finance minister

Jamaica’s inflation problem has shifted from transport costs to drought-hit food prices, Minister of Finance and the Public Service Fayval Williams said on Wednesday, as she argued that the economy has weathered Hurricane Melissa better than expected.

“So I’m going to speak about inflation because it’s important to speak about it. The story changed twice,” Williams told a post-Cabinet briefing. “After a Category 5 hurricane, you’d expect food prices to run away from you. They did not.”

Headline inflation reached 6.7 per cent in June, 7.5 per cent in July, and 7.9 per cent in August, above the Bank of Jamaica’s target range of 4.0 to 6.0 per cent. Williams attributed the July figure largely to transport, and in turn to higher global oil prices. That has now changed, she said.

“Whereas in July transportation pushed up inflation, in August it’s food,” Williams said. “Food prices are up because of the drought.”

She cited rising prices of vegetables, fruits, yellow yam, cabbage, and plantain. “I’m sure you know because you go to the market, and it’s because of the drought,” she added.

Jamaica has been here before. The 2014 drought, which the Meteorological Service called the island’s worst in 30 years, cut agricultural production by about 30 per cent against 2013 and, together with brush fires, cost the economy around a billion dollars.

What happened after Melissa

Hurricane Melissa made landfall on October 28 last year. In November, the consumer price index rose 2.4 per cent from October — among the largest monthly movements since September 2013. Thereafter, food prices rose sharply and then moderated, which Williams credited to agriculture bouncing back.

“It was because agricultural production recovered faster than expected, and so because of that, the price shock was contained,” she said adding that drought has emerged as a new inflation risk.

Wider economy

GDP contracted 2.9 per cent in the June quarter, a third consecutive quarterly decline, though the pace eased from 7.1 per cent and 4.1 per cent in the two preceding quarters and beat both the budget projection and the revised post-hurricane forecast.

Fiscal rules remain suspended until March 2027 to accommodate hurricane recovery. The Commission has pressed for a legislated plan to steer public sector debt back toward the statutory ceiling of 60 per cent of GDP.

carolyn.guniss@rjrgleaner.com