HOW IS THE ECONOMY?
According to STATIN, inflation for the month of April 2017 was approximately 0.3 per cent, and it fell further to 0.1 per cent in May but displayed a clear structural shock, spiking to 0.7 per cent in June and 0.6 per cent in July.
This shock occurred as a result of an increase in agricultural food prices after the industry was negatively affected by flood rains. The negative effect of these floods on inflation will continue a while longer before normalising towards the end of the fiscal year.
The remainder of the inflationary pressure highlighted in June and July arose from the government’s fiscal stance to increase the income tax threshold further, thus giving people more money to spend.
This was expected in the short run, as too much money chasing too few goods will result in increased prices. Increase in purchasing power will result in inflation in the short run but money neutralises in the long run.
The length of the long run depends on how long it takes to increase production, productivity and the productive capacity of the country. Nevertheless, the Bank of Jamaica believes that inflation will remain on target between four and six per cent for the 2017-2018 FY.
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