BOJ Monetary Policy Committee Maintaining Heightened Surveillance of Risks to Inflation Outlook

The Bank of Jamaica’s (BOJ) Monetary Policy Committee (MPC) is maintaining heightened surveillance of risks to the inflation outlook.

The MPC will, additionally, base its future monetary policy decisions on incoming data related to the strength of potential risks to the projected inflation outturns.

This was disclosed by BOJ Governor, Richard Byles, during the Central Bank’s recent Quarterly Monetary Policy media briefing.

The MPC, which met on February 16 and 19, was advised that inflation is projected to remain above the BOJ’s four to six per cent target range until June 2025.

This is largely consequent on the impact of temporary price shocks, including the projected impact of the second phase of the public passenger vehicle (PPV) fare increase, which is scheduled to take effect in April 2024.

“Without the impact of this second increase in PPV fares, inflation at December 2024 would fall within the target range. Whilst some key drivers of headline inflation, such as inflation expectations and the exchange rate, have remained generally stable and grain prices have declined and are projected to continue to fall, the risks to the inflation outlook remain elevated,” Mr. Byles stated.

“Higher than projected second-round effects from the PPV fare increase, higher wage adjustments in the context of a tight labour market and a further deterioration in supply chain conditions could influence higher inflation,” he further pointed out.

Additionally, the Governor said while shipping and oil prices have remained below their peak, they have recently risen, amid ongoing geopolitical tensions and supply chain disruptions.

Mr. Byles pointed out, however, that “lower-than-projected inflation could be caused by weaker-than-projected global growth, which could reduce domestic demand and imported inflation, resulting in lower rates of price change in Jamaica.”

The Statistical Institute of Jamaica reported last week that headline inflation at January 2024 was 7.4 per cent, which is higher than the outturns for the previous three months, and above the BOJ’s target range.

“However, core inflation, which excludes food and fuel prices from the Consumer Price Index (CPI), was 5.9 per cent, which is lower than the 7.1 per cent recorded in January 2023,” Mr. Byles stated.

The Governor informed that the inflation outturn at January is higher than the Bank had projected in November 2023.

He said in the wake of the announced temporary two-phase reduction in Jamaica Urban Transit Company (JUTC) fares, the BOJ had estimated that the measure would have had a material impact on tempering the inflationary pressures of the PPV fare increases.

“Inflation was consequently projected to generally remain within the target range, except for December 2023 and a few months in 2024. Upon review, the Bank now recognises that it had overestimated the impact of the reductions in JUTC fares. The two-phase reduction is now estimated to have an offsetting impact of only 0.2 percentage points on annual inflation, with the first reduction already evident in the CPI data for January 2024,” Mr. Byles said.

Notwithstanding the welcomed and offsetting reduction in JUTC fares, the Governor stated that the higher than targeted headline inflation at January, continued to largely reflect the impact of the increase in the PPV fares, as well as the effect of wage increases throughout the economy.

“The outturn also reflected high agricultural food inflation, which has been the result of the adverse weather conditions that affected the island in 2023,” Governor Byles said.

In the context of the inflation outturn and outlook, the MPC decided to maintain the policy interest rate, which is offered on deposit-taking institutions (DTIs) overnight placements with the Central Bank, at seven per cent, as also relative stability in the foreign exchange market.

The MPC, however, decided to tighten Jamaica dollar liquidity conditions more aggressively.