Bank of Jamaica : Inflation Expectations Survey Report - October 2020

Survey of Businesses' Inflation

Expectations

October 2020

SECTOR ANALYSIS DEPARTMENT

RESEARCH AND ECONOMIC PROGRAMMING DIVISION

Inflation Expectations 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 between 05 October 2020 and the 30 October 2020 and had 305 respondents. Below are highlights from that survey.

Figure 1: Inflation Expectations

If you expect inflation, what do you expect the rate of inflation to be for the current calendar year and over the next 12 months?"

Figure 2: Expected Annual Inflation

What do you expect the rate of inflation to be over the next 12 months?

8.0

7.0	6.5	7.0 6.7
6.0		5.0
5.0
5.7	4.9
4.0
3.0	12 Month Ahead Inflation Expectation
2.0
1.0	Actual Inflation YoY
0.0
Apr-18May-18Jun-18Jul-18Aug-18Sep-18Oct-18	Nov-18Dec-18Jan-19Feb-19Mar-19Apr-19May-19Jun-19Jul-19Aug-19Sep-19Oct-19Nov-19Dec-19Jan-20Feb-20Mar-20Apr-20May-20Jun-20Jul-20Aug-20	Sep-20Oct-20

Overview

• The October 2020 survey indicated an expected inflation of 6.3 per cent for calendar year (CY) 2020, which is higher than the October 2020 CPI outturn of 5.0 per cent. The expected inflation 12 months ahead decreased to 6.7 per cent relative to the previous survey outturn of 7.0 per cent.
• The perception of inflation control declined slightly in the October 2020 survey relative to the September 2020 survey.
• Respondents anticipate that the currency will appreciate over the 3-month time horizon but depreciate over the 6-month and 12-month time horizons at a slower pace relative to the previous survey.
• The majority of respondents continued to believe that the Bank's policy rate will remain the same over the next three months.
• The Present Business Conditions Index reflected a lower level of optimism while the Future Business Conditions Index illustrated a sharp increase in optimism compared to the previous survey.

	Inflation Expectations
	In the October 2020 survey, respondents'
	expectation for inflation for (CY) 2020 was 6.3
	per cent. This expectation was above the
	annual point-to-point inflation of 5.0 per cent
	for October 2020 (see Figure 1). Respondents'
	expectation of inflation 12 months ahead
	decreased to 6.7 per cent, from the previous
Prepared by the Sector Analysis Department	survey's estimate of 7.0 per cent (see Figure
2).
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October 2020 Survey

Inflation Expectations Survey

Figure 3: Perception of Inflation Control

How satisfied are you with the way inflation is being controlled by the Government?1

	Very Satisfied			Satisfied		Neither			Dissatisfied		Very Dissatisfied
							Inflation Control Index (RHS)
	100%	29.6 4.2	18.5 3.0	18.1 2.4	16.6 3.3	19.3 2.6	15.8 3.2	15.1 2.5	18.7 2.6	13.61.3	24.2 4.0	22.0 3.6	19.4 3.0	19.4 3.2	17.2 4.5	19.9 2.8	20.5 7.3	19.0 5.2	140
	80%
	90%																		120
percent	70%									39.2									100
						37.4										Index
60%	39.7	41.5	43.3	37.2	34.1	43.2	43.0	39.6	39.8	35.0	37.3	39.2	40.2	34.6	45.2
																			80
	50%									.
	40%																		60
	30%					40.0		40.3		42.9									40
		23.7	34.7	34.5	39.2	35.0	34.4	30.4	32.2	38.4	36.6	35.0	33.9	34.9	28.2
	20%
	10%																		20

0% 0

*December 2005 = 100

Table 1: Exchange Rate Expectations

In August 2020 the exchange rate was J$150.08=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	Expected Depreciation/Appreciation
Ahead	June-20	July-20	Sep-20	Oct-20
3-Months	-0.5	1.6	3.6	-0.9
6-Months	0.1	2.6	4.6	0.2
12-Months	0.4	3.0	4.1	0.3

Figure 4: 90-dayT-bill

In September 2020 the 90-dayT-bill rate was 1.14 per cent. What do you think the rate will be for the next 3 months?

Intrate)	10			Actual Int.rate (3 mth T-bill)		Exp(All)		Exp(Fin)
Exp	9
8
&
7
Actual
6
(	5
Response%	1.14 1.33 1.38	0.98	1.41 1.26
2
	4
	3
	1
	0
			Sep 2020				Oct 2020

1 Index of inflation control calculated as the number of satisfied respondents minus the number of dissatisfied respondents plus 100

Prepared by the Sector Analysis Department

October 2020 Survey

Perception of Inflation Control

Businesses' perception of the authorities' control of inflation fell slightly in the October 2020 survey (see Figure 3). This was largely due to a decrease in the proportion of respondents who were "satisfied" with how inflation is being controlled. Additionally, there was an increase in the proportion of respondents who were "neither satisfied nor dissatisfied" with how inflation is being controlled.

Exchange Rate Expectations

Respondents anticipated appreciation over the 3-month time horizon but expected depreciation over the 6-month and 12-month time horizons. In the October 2020 survey, the exchange rate was anticipated to appreciate by

1. per cent and depreciate by 0.2 per cent and

1. per cent for the 3-month, 6-month,and 12- month time horizons, respectively. This represents a much slower pace of depreciation for the 6-monthand 12-monthtime horizons for the previous survey. Respondents in the September 2020 survey expected the rate to depreciate by 3.6 per cent, 4.6 per cent and 4.1 per cent over the 3-month, 6-monthand 12- month time horizons, respectively, (see Table 1).

Interest Rate Expectations: 90-dayT-bill

Survey respondents expected the 90-day Treasury bill rate, three months to be 1.4 per cent. This expected rate is higher than the actual October 2020 outturn of 1.0 per cent (see Figure 4). Financial sector respondents expected the 90-day Treasury bill rate, three months hence, to be 1.3 per cent.

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Inflation Expectations Survey

Table 2: Interest Rate Expectations: Policy Rate

In September 2020, the Bank of Jamaica's overnight rate (policy rate) was 0.50 per cent. What do you think this rate will be for the next 3 months?

		OVERALL			FINANCIAL SECTOR
SURVEY DATES	Jul -20	Sep -20	Oct -20	Jul -20	Sep -20	Oct -20
Survey responses (percentage of total)
Significantly Lower	0.3	0.0	0.0	0.0	0.0	0.0
Marginally Lower	5.1	9.5	4.6	7.7	9.5	13.0
Remain the Same	53.2	56.6	59.7	57.7	47.6	43.5
Marginally Higher	25.3	23.2	23.9	23.1	33.3	39.1
Significantly Higher	2.2	0.0	0.0	3.8	0.0	0.0
Don't Know	13.9	10.7	11.8	0.0	0.0	0.0

Figure 5: Present Business Conditions

In general, do you think business conditions are better or worse than they were a year ago in Jamaica?

*Balanced score method: (better-worse) +100

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?

• Balanced score method: (better-worse) +100

Interest Rate Expectations: Policy Rate

In the October 2020 survey, the majority of respondents expected that the Bank's policy rate would remain the same over the next three months. This proportion increased relative to the previous survey.

With regard to the financial sector, the majority of respondents expected that the Bank's policy rate would remain the same. Furthermore, responses from the financial sector revealed that 39.1 per cent of respondents expected the rate to be marginally higher. This represented an increase relative to the October 2020 survey.

Perception of Present and Future Business Conditions

In the October 2020 survey, the Present Business Conditions Index decreased to 24.6 relative to 37.9 recorded in theprevious survey. However, the Future Business Conditions Index increased sharply to 128.2 relative to 115.3 in the previous survey (see Figures 5 and 6).

The decrease in the Present Business Conditions Index reflected an increase in the number of respondents of the view that conditions are "worse". The outturn for the Future Business Conditions Index mainly reflected an increase in the proportion of respondents who believe that conditions will be "better".

Prepared by the Sector Analysis Department

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October 2020 Survey