What goes up should come down!
Over the last year and a half I have sought to prepare the Jamaican public for the various fallouts arising from the pandemic, supply chain disruptions, inflation, the russian invasion of Ukraine, rising interest rates, the oil shortage and other inputs for food production. Unfortunately, these global crises have resulted in unprecedented price increases.
Coming off the tailwind of the rebound from excessive personal demand, consumption of goods from COVID, the prices of many essential commodities peaked after the start of the Russian-ukraine war, which is still ongoing. Last week, I spent some time evaluating some of these prices of goods from various sources and their implications on the Jamaican public.
For example, the Brent crude oil cost was US$124 per barrel in March 2022. Today, the same commodity has decreased by 30 per cent to US$87.06 per barrel (www.tradingeconomics.com). Oil is the most impactful resource in our every life, covering our electricity, transportation of people, goods and services, and water pumping for personal and commercial usage.
On November 23, 2022, Jamaica Public Service (JPS) advised that: “JPS customers will see, on average, a 3.14 per cent reduction in bills for November, as the company passes on savings to its customers, due to a drop in fuel prices. This was the second consecutive month that saw a fall in electricity rates, as October rates dipped by 3.75 per cent — over 6 per cent drop in two months... JPS has consistently passed on savings resulting from the fall in the price of oil on the world market, whenever this occurs.”
But how has the 30 per cent drop in global oil prices compared to the six per cent reduction referred to by the JPS? Has the Office of Utilities Regulation (OUR) been actively monitoring these worldwide prices and the lag time it takes for Jamaicans to benefit from decreases when they occur? If so, where are these updates to the public?
While there’s been a 30 per cent reduction in the oil price from March 2022 to January 2023, on my own JPS bill the fuel charges has been as follows:
April 2022 - $36.40/kwh
August 2022 - $32.18
January 2023 - $31.62
Overall, a decrease of only 13.13 per cent.
Basic necessities
Corn is the primary ingredient in poultry and other animal feed production. Last April corn prices soared to US$812 per bushel, but they fell to US$593 in July. Today, the price of corn has moved up to US$678 per bushel, which is still 15.7 per cent below its peak price (www.tradingeconomics. com).
In August 2022 Jamaica Broilers Group, producer of The Best Dressed Chicken, announced a price cut for some of its products based on reliability in the supply of grains, foreign exchange, and shipping costs. The company said: “Effective August 18, prices for The Best Dressed Chicken Grade-a Whole Bird and mixed parts will be reduced by $12.50 per kilo.”
The Agricultural Services Unit in the Ministry of Agriculture and Fisheries pointed out that the average supermarket price for a Grade-a whole chicken at that time was $853.15 per kilo. Therefore, this price reduction represented only a 1.5 per cent decrease to the consumer.
Further, on January 14, 2023, The Best Dressed Chicken Grade-a whole chicken was $826.00 per kilo, a 3.16 per cent reduction from August. Nowhere equivalent to the 15.7 per cent reduction in the world market corn prices.
Then there is cooking oil (palm oil), which on March 10, 2022 was US$7,777.00 per metric tonne. Today the same product is US$3,781.00 per metric tonne — a reduction of 51.38 per cent.
Malaysia, the world’s second largest exporter of palm oil, had a decline in its exports due to a lack of global demand between December 2022 and January 2023. While that country’s production is to increase by 3.3 per cent, which should push the prices down further.
However, here in Jamaica, this January, we are paying $8,705.40 for a wholesale five-gallon container of cooking oil, versus paying $5,003.17 in January 2022 — an increase in the price of 74 per cent while world market prices have fallen.
What is more, Jamaicans paid an average wholesale price of $6,240.51 for a 100 pound bag of flour this month versus $5,003.17 in February 2022 — an increase of 24.7 per cent. Yet the price of wheat, the main input for flour production, has returned to what it was in February 2022 — US$755.40 per bushel. Moreover, its cost has decreased by 41.2 per cent over the past eight months from US$1,277.50 per bushel in May 2022 to US$751.36 in January 2023.
This favourable cost decline situation is due to the strong global wheat supply on the world market, largely due to improved agricultural conditions in Argentina, an abundant harvest in Russia, and a forecast of 42 million tonnes from Australia (www. tradingeconomics.com). Therefore, the prices and supply of flour should be good for 2023, and our consumers ought to benefit by paying lower prices.
Additionally, lumber prices, on the whole, have dropped significantly in the commodities market. In March 2022 the price was US$1,454.07 per 1.000 board feet and has fallen to US$464.20 — a whopping 68 per cent price reduction. To the extent that lumber affects the cost of roofing and other construction material costs, one should expect our construction costs to fall in short to medium term.
‘Reset di tings’
Price increases in basic commodities ultimately lead to inflation, which is outside our control since we import most of them. However, we have control over monitoring the efficiency of price fluctuations so that when prices should come down, they do.
To counter inflation, the Bank of Jamaica (BOJ) increased the policy interest rates several times last year. Central bank Governor Richard Byles asserted that the Jamaican interest rates would continue to grow unless inflation decreased to the BOJ target range of 4 per cent to 6 per cent.
I pointed out then that the BOJ should have “held its hand” to allow positive external factors to pass through our economy as oil prices were decreasing, Ukraine had resumed its wheat exports, container shipping rates from China had fallen from US$20,000 to US$5,500 and continue to fall, and the US Federal Reserve was tightening its money supply.
Now, as predicted, commodity prices have reduced. Therefore, we need an urgent mechanism for these reductions in world market commodities to be passed on to Jamaican consumers.
Now, more than ever, Jamaicans need some breathing room in helping to make their ends meet to buy food, pay for transportation, energy, mortgages, and other hire purchase payments. It cannot be fair that the prices to them seem only to be going in one direction: Up!