• Spurred primarily by a rise in the index for Food and Alcoholic Beverages, the All-Jamaica Consumer Price Index (CPI) rose to 116.0 in the month of October (+1.0%). October’s outturn meant that inflation was 8.5% in the 12 months to October 2021 relative to the 8.2% reported in September 2021. Consumer prices have risen for 6 straight months and this is the third consecutive month that inflation has fallen above BOJ’s target range. 
• A 2.5% increase in the heavily weighted index for the “Food and Non-Alcoholic Beverages” division was a major contributor due in part to 6.8% increase in the index for the class ‘Vegetables, tubers, plantains, cooking bananas and pulses’. 
• An increase in the index for the division ‘Transport’ (0.3%) also contributed to the rise in inflation. However, this was tempered by a decrease in the index for the division ‘Housing, Water, Electricity, Gas and Other Fuels’ (0.5%). 
• Inflation is projected to average between 5.5% and 6.5% over the next two years, above the previous projection of 4.8% according to the BOJ. The inflation projection is driven primarily by a gradual rise in core inflation, supported by the lagged impact of higher international grains and shipping prices, a recovery in domestic demand and a temporary jump in inflation expectations. 
• The BOJ will make its next policy decision today, November 16, 2021 and is widely expected to raise its benchmark rate given the rise in consumer prices. This monetary policy tightening would be aimed at containing the rise in consumer prices and inflation expectations. That being said, the BOJ will have to weigh monetary policy tightening against the adverse impact that this could have on the fledging economic recovery. 
• The BOJ has already increased its benchmark interest rate 50 basis points, which came into effect October 1, 2021. The BOJ’s hawkish stance contrasts with that of central banks in developed markets, such as Canada, the UK and the US, which have been focused on delaying raising rates until the slack in their economies is absorbed. Policy makers in these countries view the rise in inflation as transitory, though they have admitted recently that it is likely to persist longer than they initially expected.

(Source: STATIN and NCBCM Research)

• Jamaica is expected to welcome 1.5Mn visitors by December 31, with estimated earnings of US$1.9Bn. This was noted by Director of Tourism, Donovan White, at a Jamaica Tourist Board (JTB) media briefing, held at Moon Palace Resort in St. Ann, on November 10. 
• There has been an uptick in the length of stay of visitors to the destination, since Jamaica reopened, from 7.1 days to eight days, and average visitor spend from US$169 per day per visitor to US$180. This has allowed the Ministry to forecast their revenue projections to just under US$2.0Bn for the calendar year. 
• This improvement has allowed JTB to reforecast when it believes the destination will return to pre-COVID levels of performance, highlighting that it sees that happening round about third quarter of 2023. 
• White said it is expected that by the end of 2023, Jamaica will welcome 4.1Mn visitors, split between 2.5Mn stopovers and 1.6Mn cruise passengers, with a revenue out-turn of about US$4.2Bn in earnings. 
• He noted that in 2019, Jamaica had 4.2Mn visitors, and US$3.7Bn in earnings. He then highlighted that if you go forward to 2023, where they are saying 4.1Mn visitors, but US$4.2Bn in earnings, there’s an uptick of about half a billion dollars in earnings that is anticipated. This, he said, is coming from what they are seeing in the average spend per visitor as well as the length of stay. 
• The growing number of visitors is being aided by recovery in several segments of the tourism industry including the return of cruise activity to Jamaican ports. A contributor to recovering cruise activity is the recent return of Carnival Corporation’s Emerald Princess to the coastal town of Falmouth, Trelawny, Jamaica’s largest port, with some 2,780 passengers and crew members, on Sunday, November 14.

(Source: JIS News & NCBCM Research)

• Fitch Solutions will be watching Q3 2021 GDP releases in Chile, Colombia and Peru this week for an indication of the state of the economic recovery throughout Latin America. 
• In particular, Chile and Peru have rebounded at a faster pace than other markets throughout the region due to a substantial fiscal stimulus, a series of pension withdrawal measures and robust demand for exports, resulting in 18.1% and 41.9% growth respectively, in Q2 2021. 
• While Colombia has grown at a somewhat slower pace, the lifting of public health restrictions has powered a swift recovery in the labour market and supported private consumption on the way to 17.6% growth in Q2. 
• While growth in all three economies will certainly decelerate in y-o-y terms through the end of 2021 and into 2022 as base effects fade, all three will likely have regained their pre-pandemic levels of output by mid-2022. Fitch expects this will allow their respective central banks to continue to raise their policy interest rates throughout 2022 in response to elevated inflation.

(Source: Fitch Solutions)

• Fitch Solutions forecasts real GDP in the Bahamas will grow by 1.5% in 2021 and 4.8% in 2022 as public health restrictions loosen and the tourism sector recovers.  
• The tourism sector’s recovery in 2022 will drive growth in exports and job creation, which will boost domestic private consumption. 
• A possible fourth wave of COVID-19 cases and elevated public debt levels pose downside risks to the economic recovery. 
• The sovereign is also facing fiscal challenges which has resulted in a recent downgrade in its rating. On November 12, 2021, S&P Global Ratings lowered its long-term foreign and local currency sovereign credit ratings on the Commonwealth of The Bahamas to 'B+' from 'BB-', while at the same time, changing the outlook on the rating to stable from negative. The downgrade reflects the failure of successive governments to implement timely and effective reforms that have weakened public finances, created a high debt burden, and increased funding pressures.

(Source: Fitch Solutions and Standard & Poors)

• Fueled by a persistent shortage of available workers, wage pressures will take over as the dominant driver of U.S. inflation in the second half of next year, according to Jefferies Group LLC. 
• “We believe the U.S. is entering the tightest labour market conditions since the 1950s,” Aneta Markowska, chief financial economist at Jefferies, wrote in a note Monday. As a result, wage pressures are unlikely to ease next year, keeping inflation elevated even as supply chain bottlenecks abate. 
• While transitory factors have accounted for about 1.5 percentage points of the core consumer price index increase over the past year, tightness in the labour market is contributing nearly 1 percentage point and that “is unlikely to change,” Markowska said. Excluding food and energy, consumer inflation is up 4.6% from a year earlier, the most since 1991.

(Source: Bloomberg)

• The Bank of Canada will not raise its benchmark interest rate until the slack in the country's economy is absorbed, which has not yet happened but is getting closer, Governor Tiff Macklem said in a newspaper opinion piece on Monday. 
• Macklem also noted that while inflation risks have increased, driven by pandemic induced demand shifts, supply disruptions, and higher energy prices, the central bank continues to view the recent dynamics as transitory. 
• "For the policy interest rate, our forward guidance has been clear that we will not raise interest rates until economic slack is absorbed. We are not there yet, but we are getting closer," Macklem wrote in an op-ed for the Financial Times newspaper. 
• He added that the central bank's flexible inflation target, which is focused on the 2% midpoint of a 1-3% control range, means Canadians can be confident that inflation will be kept under control, while supporting a full recovery.

(Source: Reuters)

• Private consumption will grow by 4.2% in 2021 and 3.5% in 2022 as the return of the tourism industry boosts employment in Jamaica, according to Fitch Solutions. The tourism industry represented approximately 29.0% of employment in 2019. As activity in the industry gathers pace in the coming quarters, it is expected that firms will re-hire workers, driving down unemployment. 
• Unemployment was 9.0% in Q221, below the 12.6% in Q320 but still above the average of 7.7% in 2019. Unemployment is forecast to average 7.9% in 2022, which will boost household incomes and private consumption. 
• At the same time, a strong labour market in the US, where the majority of Jamaican expatriates work, will bolster continued remittance inflows. Remittances accounted for 15.2% of GDP in 2019, and in the year through July 2021, increased 30.4% y-o-y. Strong remittance inflows will further support household incomes and private consumption. 
• A brighter outlook for tourism will drive a 4.0% increase in investment in 2021 and 3.5% in 2022. In Q221, Tourism Minister Edmund Bartlett announced the economy would benefit from approximately USD2.0bn in investment in the tourism industry in 2021 and 2022. Additionally, the government passed the Casino Gaming Amendment Act in July, which will facilitate the construction of casinos in the years ahead. The continued global spread of COVID-19 poses downside risks to Jamaica’s recovery. It increases the possibility that more vaccine-resistant variants of COVID-19 will develop and weaken the demand for global travel and threaten Jamaica’s recovery.

(Source: Fitch Solutions)

• Jamaica’s current accounts surplus is expected to grow to 0.8% of GDP in 2021 and 0.6% of GDP in 2022, from a 0.1% deficit in 2020. In Q121, remittance inflows brought in USD742.0mn, which was enough to offset most of the goods trade deficit of USD770.1mn. It is expected that this trend will continue throughout 2021, resulting in Jamaica’s first current account surplus since 1994. However, moving into 2022, sustained import demand will begin outweighing the impact of service exports and remittances, narrowing the current account surplus. 
• The goods trade deficit is expected to continue to widen in 2022 as rebounding economic activity leads to import growth of 8.5%. Real GDP growth of 4.1% is expected in 2022, with a rebound in private consumption boosting goods import demand. In the year through May 2021, goods imports have grown 24.0%. Import growth should decelerate in the coming months as base effects fade, though Fitch still expects it to outweigh the 5.5% growth that it forecasts for goods exports. 
• Overall, the goods trade deficit will widen to USD3.6bn in 2022, up from USD3.2bn in 2020 and USD2.9bn in 2021, and will be the largest contributor to the narrowing of the current account surplus in the coming quarters.

(Source: Fitch Solutions)

• If sea level rise over the next 29 years goes unmitigated, Antigua and Barbuda’s coastline could be unrecognisable, causing a major blow to the country’s bread and butter industry – tourism, coastal settlements and other coastal developments, according to a recent report. 
• The report titled ‘360° Resilience: A Guide to Prepare the Caribbean for a New Generation of Shocks’ explained that the region has a history of dealing with major shocks from both economic and natural hazards, adding that the region’s specialisation in tourism and commodity exports disproportionately exposes islands to economic cycles due to changes in demand in the tourism industry and commodity prices. 
• “In the absence of adaptation, by 2050, countries like Trinidad and Tobago, Antigua and Barbuda, St Lucia, and the Bahamas will see a large proportion of hotels unable to profit from proximity to a sandy beach,” the report said. 
• The World Bank report explained that erosion to the sandy beaches that many countries in the region like Antigua and Barbuda are renowned for, “directly affects” the tourism sector’s profitability, adding that “even under a moderate CO2 emissions pathway, 13 percent of nearshore hotels will experience beach loss resulting in a 17 percent decrease in tourism revenue for the region by 2050”.

(Source: World Bank)

• Value-added tax (VAT) and excise tax collections grew by $8.9 billion, or 21.5 percent, when compared with the level at the end of June 2020. This is according to the Ministry of Finance Mid-Year Report. 
• The growth reflected in this area was primarily due to a $1.8 billion increase in VAT collections from imported goods and services, outweighing the $0.6 billion contraction in VAT collections from domestic supplies. 
• The figures undermine government’s stated commitment to reduce taxes and ease the cost of living during their elections campaigns. Moreover, the Guyana Revenue Authority (GRA) mere weeks ago complained about the “drastic reduction in filing of VAT returns by VAT Registrants”. 
• Earlier this year, a host of tax reductions were announced by Finance Minister, Dr. Ashni Singh. These included lowered water rates and removal of VAT on residential and individual data usage, as well as on certain food and household items. The Government had also promised no new taxes.

(Source: Kaieteur News)