ONE of the cornerstones of the Government's successful pronouncements has been its ability to produce single digit inflation. This means that it has been able to keep the general level of consumer prices from rising to 10 per cent or more, over the past five years (with a possible sixth year, if the consumer price index records less than 10 per cent in the year 2002).
With inflation tamed, in contrast to the high price movements of the years 1989-1996, it can ask for moderate wage increases and stem social unrest. All of this may end in the year 2003, as various factors combine to derail low price increases.
Jamaica has had to keep price increases low due to greater competition in the world, as economic change brings another set of challenges to all developed countries and developing countries. Most countries cannot allow steep price increases out of line with the rest of world, unless there is an economic crisis, as in Zimbabwe or in Argentina where the inflation rate is running above 49 per cent.
This stands in sharp contrast to the 1980s when many Latin American economies were running inflation rates varying between 100 per cent to one thousand 1,000 per cent. Nowadays, the economy that has a high inflation rate stands out like a sore thumb.
Jamaica's official rate has been depicted by using the Consumer Price Index (CPI) to represent the inflation rate for all Jamaica. I have had major problems with this index, as done by STATIN, since it uses a base month from January 1988 and uses several items in its main basket of goods and services, which are either less utilised at present in 2003, and omits items which are heavily used at present in 2003 (such as cellular service).
It has meant that given current weighting of various categories, that it is likely that the official inflation rate understates the likely realistic inflation rate. This does not mean that the inflation rate has not been moderated but that it is not as low as is proclaimed.
In 2003, expect drastic changes to this low scenario. Food prices have already started to trend upwards (given wheat price increases) and with fertiliser price increases; any OUR approval for electricity rates to go up; the rising petroleum prices and its impact on transportation costs; possible bus fare hikes, with spin-off on taxi fees; and the rapid depreciation of the Jamaican dollar, we could see double digit inflation rate in the year 2003.
When the Jamaican dollar has depreciated or devalued, there have been steep increases in the inflation rate commensurate with the fall in the Jamaican dollar. A steep fall means a high inflation rate and a small fall means a low inflation rate. This is because Jamaica has a high marginal propensity to import, which in everyday language means that Jamaica depends heavily on imported goods, such as oil, food supplies and other key items.
The challenge for the year will be to drastically increase the productivity rate in Jamaica so that we can try to keep the inflation rate (when revised to take account of current use of goods and services) as low as we can possible get it to be, in a year of rising prices.
