THE ANALYSTS: Sustained inflation could impact investments

Investors are being advised to brace for an impact on their portfolios if the cost of goods and services continue to rise.

Assistant General Manager at JMMB Group, Greig Lindo, told Kalilah Reynolds on Taking Stock that the local economy has entered a transitory inflation period as the economy reopens on a phased basis, leading to more spending and demand for commodities.

Based on the latest data coming out of the Statistical Institute of Jamaica (STATIN), the price of goods and services rose slightly in June, with inflation coming in at 0.7%. The slight increase was impacted by an almost 2% movement in the heavily weighted food and non-alcoholic beverages division.

Assistant General Manager of Trading and Treasury at Jamaica Money Market Brokers (JMMB), Greig Lindo

Also contributing to the overall inflation rate was an almost 6% increase in the restaurants and accommodation services division due to higher prices in restaurants and cafes as well as an almost a half a percent increase in the transport division due to higher gas prices.

“There’s going to be a spike in demand once persons get out and we’ve recently seen some relaxation in the COVID-19 restrictions locally that may actually result in persons being more active so certainly there is going to be some short term pressure…we’ve already seen prices move higher in almost everything we consume including gas and food prices,” said Lindo.

Lindo cautioned that interest rates could rise should inflation be sustained over the long term, and added that a prolonged spike will likely impact investments.

However, he said there’s still the expectation that interest rates will remain low until the domestic economy experiences meaningful recovery.

“If you have fixed income investments, certainly rising interest rates aren’t good for you and if you’re invested in equities there’s also going to be an impact on the valuation of that portfolio as well because real returns will tend to fall with interest rates rising,” he reasoned.

The Bank of Jamaica, in its last quarterly update, projected inflation to remain within its 4%-6% target over the short term.

Business Writer at Jamaica Observer, David Rose.

However, Business Writer at the Jamaica Observer, David Rose, pointed to rising shipping costs and the continued fluctuation of the Jamaican dollar as possible factors that could derail those expectations. Just days ago, the Jamaican dollar again hit an all time low, breaking the J$155 to US$1.00 barrier.

“Some of us feel it from the goods that we buy in the supermarket which are things that we need but don’t necessarily produce in Jamaica…all of that is feeding into it,” said Rose.

Meanwhile, Financial Coach, Founder and CEO of Profit Jumpstarter, Keisha Bailey, believes banks will welcome any increase in rates as they tend to do well in a higher interest rate environment.

“So while there are a lot of talks on transitory inflation I think some amount of it is here to stay and the player [to benefit] on that side would be the financial institutions if we have persistent inflation going through,” she said.