US embassy cable - 05KINGSTON1319

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