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Identifier
Created
Classification
Origin
05KINGSTON1319
2005-05-20 20:06:00
UNCLASSIFIED
Embassy Kingston
Cable title:  

PRICES REMAIN HIGH IN JAMAICA

Tags:   ECON  EFIN  JM 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
						UNCLAS KINGSTON 001319 

SIPDIS

STATE FOR WHA/CAR/ (WBENT), WHA/EPSC (JSLATTERY)

SANTO DOMINGO FOR FCS AND FAS

TREASURY FOR L LAMONICA

E.O. 12958: NA
TAGS: ECON EFIN JM
SUBJECT: PRICES REMAIN HIGH IN JAMAICA




1. Inflation, as measured by the consumer price index, rose
by 13.2 percent for the Jamaican fiscal year 2004/05 (April
- March). While this was below the 16.8 percent recorded
for the comparative period, it outpaced the original target
of nine percent. Inflationary impulses were fed by a
prolonged drought and a devastating hurricane, which caused
a 16.5 percent decline in agricultural production. The
subsequent scarcity of domestic food supplies, in
particular, caused a surge in prices. Inflation of 6.4
percent from September to December 2004 was largely the
result of this hurricane.



2. Inflation moderated significantly during the first two
months of 2005, but a 1.0 percent jump in March pushed
prices for the quarter to 1.5 percent. The renewed impetus
was driven by another bout of drought and the outbreak of
several large bush fires in the breadbasket region of St.
Elizabeth, which combined to stymie the recovery in
agricultural production. The increase in prices has
continued, with inflation for April reaching 1.9 percent,
bringing inflation for January to April 2005 to 3.4 percent,
1.1 percentage points higher than the comparative period of


2004.



3. Inflation of eight percent has been programmed for the
Jamaican 2005/06 fiscal year but the GOJ could be hard
pressed to achieve this target, now that drought conditions
have given way to flooding and landslides in agricultural
areas. This will lead to further volatility in domestic
food prices. Increased oil prices and the revised tax
package implemented in April are also expected to fuel
further inflation and inflationary expectations.



4. High inflation in Jamaica has traditionally been driven
by monetary policy or core inflation and, in particular,
increased money supply and instability in the foreign
exchange market. However, recent inflationary impulses have
been driven by cost-push factors and policy-induced shocks
such as tax hikes. The reversal in this trend has been due
to the Bank of Jamaica's commitment to manage base money, as
well as to build up the stock of Net International Reserves
(NIR) to bring order to the foreign exchange market. The
stock of NIR now stands at USD 2 billion, the highest it has
ever been in over a decade.

TIGHE