survey of businesses expectations · future movement of prices, current and future business...

Survey of Businesses’ Inflation Expectations

April 2015

RESEARCH SERVICES DEPARTMENT RESEARCH AND ECONOMIC PROGRAMMING DIVISION

Inflation Expectations Survey

Prepared by the Research Services Department Page 1 April 2015 Survey

The Statistical Institute of Jamaica (STATIN) undertakes surveys of businesses on behalf of the

Bank of Jamaica to ascertain the expectations of these economic agents about variables which are

likely to have an impact on inflation in the near-term. In this regard, the survey captures the

perception of Chief Executive Officers, Managing Directors and Financial Controllers about the

future movement of prices, current and future business conditions and the expected rate of increase

in wages/salaries. These responses assist the Central Bank in charting future policy decisions. The most recent

survey was conducted in April 2015 and had 286 respondents. Below are highlights from that survey.

Figure 1: Inflation Expectations

For the calendar year 2014, the inflation rate was 6.4

per cent. What do you think the inflation rate will be

for 2015?

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Dec-14 Feb-15 Apr-15

An

nu

al p

oin

t to

po

int

P e

r ce

nt

Actual Pt to Pt (Headline) CY Forecast CY Expectation

Figure 2: Expected Annual Inflation

Based on the last 12 months (March 2014 to

February 2015) the average monthly inflation rate

was approximately 0.4 per cent. What do you think

the average monthly rate will be for the next 12

months?

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

(%)

Actual Expected

*Note: (i) The responses have been annualized (ii)

the expected inflation for April 2016 reflects

responses as at April 2015 (ii) periods where no

survey was conducted assume the previous month’s

expectation.

Overview

The April 2015 survey indicated an

expected inflation of 7.1 per cent for

calendar year (CY) 2015, similar to the

previous survey. The expected inflation

12 months ahead, however, declined

markedly relative to the previous survey.

The perception of inflation control

improved in the April 2015 survey

relative to the previous survey.

In comparison to the previous survey,

respondents expect a slower pace of

exchange rate depreciation over the 3-

month, 6-month and 12-month horizons.

The majority of respondents believe that

the Bank’s OMO rate will remain the

same over the next three months.

Both the perception of present and future

business conditions moderated relative

to the previous survey. Notwithstanding,

there has been a general upward trend in

present and future business conditions

since the April 2013 survey.

Inflation Expectations

In the April 2015 survey, the expected inflation

for CY2015 was 7.1 per cent, similar to the

result in the February 2015 survey. However,

this expectation was above the annual point-to-

point inflation of 4.0 per cent at March 2015

(see Figure 1). Notably, respondents’

expectation of inflation 12 months ahead

declined to an unprecedented 5.1 per cent in

the April 2015 survey from 7.7



Figure 3: Perception of Inflation Control

How satisfied are you with the way inflation is being

controlled by the Government?1 8.4

24.8

5.5 9.3 10.0

7.3 15

.0

4.3 14

.5

8.0 10.7

9.8 15.4 18.2

17.4 21

.8 25.3

20.9

24.8

28.2

35.9

20.6 24

.7 28.2

29.8 27

.2

22.3

28.4

23.6 20

.9

26.4 26

.5 23.3 32

.2 28.9 30

.6

26.1 29

.0

38.3

27.6

36.1

37.3 33

.0 38.1

35.0

38.3

31.4

40.0

44.0 39

.0

36.4 37

.0 37.4

32.9 30

.2

29.4

33.6

23.8

10.0

36.8 28

.3

27.8 23

.8

22.8

34.3 25

.7

27.6 23

.5

24.8 21

.3

21.2 12

.6

15.1 12.5

20.3 11

.2

0

50

100

150

200

250

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% Re

spon

se

Very Satisfied Satisfied Neither Dissatisfied Very Dissatisfied

.

*December 2005 = 100

Table 1: Exchange Rate Expectations

In February 2015 the exchange rate was

J$115.04=US$1.00. What do you think the rate will

be for the following time periods ahead, 3 months, 6

months and 12 months?

OVERALL SURVEY

Periods Ahead

Expected Depreciation

Sep-14 Oct-14 Feb-15 Apr-15

3 Months 1.3 1.0 1.7 0.7

6 Months 2.2 1.4 3.0 1.2

12 Months 3.2 2.3 3.8 2.2

Figure 4: 180-day T-bill

In March 2015 the 180-day T-bill rate was 7.0 per

cent. What do you think the rate will be for the next

3 months?

7.1 7.26.8

7.4 7.3 7.47.3 7.3 7.4

0

1

2

3

4

5

6

7

8

9

10

Dec 2014 Feb 2015 Apr 2015

% R

espo

nse

( A

ctu

al

& E

xp I

ntr

ate

)

Actual Intrate (6mth T-bill) Exp(All) Exp Intrate(Fin)

1 Index of inflation control calculated as the number of satisfied

respondents minus the number of dissatisfied respondents plus

100

per cent in the February 2015 survey (see

Figure 2). This most recent expectation for

annual inflation 12 months ahead represents

the lowest level since the inception of the

survey.

Businesses’ perception of inflation control by

the authorities increased in the April 2015

survey when compared to the previous survey.

Specifically, the index of inflation control rose

to 211.4 from 193.5 in the February 2015

survey (see Figure 3). This outturn mainly

reflected an increase in the number of

respondents who were ‘satisfied’ with the

authorities’ control of inflation. Additionally,

there was a decline in the number of

respondents who were ‘very dissatisfied’.

Exchange Rate Expectations

Relative to the survey in February 2015,

respondents expected a slower pace of

depreciation in the domestic currency for the 3-

month, 6-month and 12-month period beyond

the survey date. Specifically, in the April 2015

survey, the exchange rate was expected to

depreciate by 0.7 per cent, 1.2 per cent and 2.2

per cent for the 3-month, 6-month and 12-

month horizons, respectively (see Table 1). The

survey in February 2015 had indicated expected

depreciation of 1.7 per cent, 3.0 per cent and

3.8 per cent over the respective horizons.

Interest Rate Expectations: 180-

day T-bill

The expected 180-day Treasury bill rate, three

months hence, increased marginally to 7.4 per

cent from 7.3 per cent in the previous survey.

This expected rate was above the actual outturn

of 6.8 per cent for April 2015 (see Figure 4).



Table 2: Interest rate Expectations: OMO Rate

In February 2015, the Bank of Jamaica’s 30-day rate

was 5.75 per cent. What do you think this rate will

be for the next 3 months?

SURVEY DATES Dec 14 Feb 15 Apr 15 Dec 14 Feb 15 Apr 15

Survey responses (percentage of total)

Significantly Lower 0.0 1.6 1.4 0.0 0.0 1.4

Marginally Lower 19.9 20.3 18.9 26.6 20.3 23.2

Remain the Same 49.5 48.4 53.5 48.4 51.6 49.3

Marginally Higher 23.8 27.5 24.1 17.2 25.0 24.6

Significantly Higher 6.0 2.0 0.7 7.8 3.1 0.0

Don’t Know 0.7 0.3 1.4 0.0 0.0 1.4

OVERALL FIN SECTOR

Figure 5: Present Business Conditions

In general do you think business conditions are

better or worse than they were a year ago in

Jamaica?

12

7.4

13

4.7

10

6.3

11

5.1

82

.2 90

.8

89

.3

13

4.7

47

.5 59

.4

60

.0 66

.7

87

.4

66

.5

97

.5 10

7.3

95

.8 10

2.5 1

21

.1

11

0.2 12

3.6

15

5.0

16

4.9

16

2.6

16

1.5

0

20

40

60

80

100

120

140

160

180

Ap

r-12

Ma

y-12

Jun

-12

Se

p-1

2

Oct-1

2

No

v-1

2

Jan

-13

Ma

r-13

Ap

r-13

Ma

y-13

Jun

-13

Au

g-1

3

Se

p-1

3

Oct-1

3

De

c-1

3

Fe

b-1

4

Ap

r-14

Ma

y-14

Jun

-14

Au

g-1

4

Se

p-1

4

Oct-1

4

De

c-1

4

Fe

b-1

5

Ap

r-15

Ind

ex

of

Pre

sen

t B

usi

ne

ss C

on

dit

ion

s


Figure 6: Future Business Conditions

Do you think that in a year from now business

conditions will get better or get worse than they are

at present?

14

1.2

14

8.8

14

1.5

13

2.2

12

8.1

13

0.6

12

2.2

14

8.8

93

.4

11

5.0

10

2.9

11

4.3

11

6.6

98

.6

12

5.0

13

4.1

11

7.2

11

7.9 12

9.9

11

9.4 1

42

.4

14

6.0

15

7.0

15

2.2

14

0.7

0

20

40

60

80

100

120

140

160

180

Ap

r-12

Ma

y-12

Jun

-12

Se

p-1

2

Oct-1

2

No

v-1

2

Jan

-13

Ma

r-13

Ap

r-13

Ma

y-13

Jun

-13

Au

g-1

3

Se

p-1

3

Oct-1

3

De

c-1

3

Fe

b-1

4

Ap

r-14

Ma

y-14

Jun

-14

Au

g-1

4S

ep

-14

Oct-1

4D

ec

-14

Fe

b-1

5

Ap

r-15

Ind

ex

of

Fu

ture

Bu

sin

ess

Co

nd

itio

ns


Interest Rate Expectations: OMO

Rate

In the April 2015 survey, the majority of

respondents expected that the Bank’s OMO rate

will remain the same over the next three

months. The results for the financial sector

were consistent with the overall view that the

BOJ would maintain the 30-day OMO rate at

the current level. The proportion of respondents

who anticipated a marginally higher rate

declined to 24.1 per cent from the 27.5 per cent

expected in the February 2015 survey.

Perception of Present and Future

Business Conditions

In the latest survey, there was a moderation in

both the perception of present and future

business conditions among respondents relative

to the previous survey. Notably, the index of

present business conditions moderated to 161.5

from 162.6 in the previous survey. This result

represented the second consecutive decline in

the index relative to the high of 216.3 in the

December 2014 survey. Similarly, the index of

future business conditions moderated to 140.7

from 152.2 in the previous survey (see Figures

5 and 6). Notwithstanding, the indices of

perceptions of present and future business

conditions have displayed a general upward

trend since the April 2013 survey.



Table 3: Operating Expenses Which input do you think will have the highest

price increase in the next 12 months?

Oct-14 Dec-14 Feb-15 Apr-15

Utilities 45.3 34.5 30.4 32.2

Wages/Salaries 7.4 14.2 8.2 9.1

Fuel/Transport 12.4 10.7 12.7 17.5

Stock Replacement

19.1 26.0 31.7 28.0

Raw Materials 14.8 13.2 15.7 12.2

Other 1.0 1.4 1.3 1.0

Not Stated 0.0 0.0 0.0 0.0

Expected Increase in Operating

Expenses

Respondents continued to indicate that they

expect the largest increase in production costs

over the next 12 months to emanate from higher

costs for utilities (see Table 3). The cost of

stock replacement was expected to be the

second largest contributor to higher production

costs over the next 12 months. Also, the cost of

fuel and transport was expected to contribute to

higher production costs for the year ahead.

Wages & salaries continued to be the input cost

least expected to increase over the next 12

months.

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