BOJ Anticipates Brief Interruption in Declining Inflation Rate Trajectory

The Bank of Jamaica (BOJ) has advised that the country’s declining inflation rate is expected to be temporarily interrupted, but projected to return to the BOJ’s target range thereafter.

The inflation rate in April was 5.3 per cent, which is within the Bank’s four to six per cent target range and lower than the out-turn for March.

Addressing the Central Bank’s Quarterly Monetary Policy Press Conference on Tuesday (May 21), BOJ Governor, Richard Byles, said inflation is projected to breach the upper end of the target range towards the end of the April to June quarter.

“This is expected to reflect mainly seasonally higher agricultural food prices, a normalisation in electricity rates following significant declines in the same quarter of 2023 and higher transport-related inflation, due to the uptick in oil prices,” he informed.

The Governor advised that inflation is, thereafter, projected to return to the target range and generally remain there over the next eight quarters, with the exception of a few months in 2025.

“The current outlook for inflation is lower than the previous forecast that was shared with you in February 2024. The improved outlook is mainly due to the removal from the forecast of the second increase in public passenger vehicles fares,” Mr. Byles explained.

The Government recently postponed implementation of the 16 per cent fare increase, which was set to take effect on April 1.

Mr. Byles added that processed food prices and the cost of meals away from home were also revised downward due to lower international grains prices.

“This is partially offset by the incorporation in the forecast of the announced increase in the national minimum wage and higher energy and transport-related inflation, due to higher international oil prices,” he said.

Governor Byles shared that despite the improved outlook, the Monetary Policy Committee (MPC) considered that the risks around the forecast were skewed to the upside over the next eight quarters.

He explained that while core inflation has moderated, it remains close to the upper end of the target range.

“Additionally, both measured and survey-based indicators of businesses’ inflation expectations, although lower, have remained above the inflation target. Larger-than-projected regulated price adjustments could also influence higher inflation,” Mr. Byles said.

He pointed out that there are some upside risks external to Jamaica that could influence higher inflation.

These include higher-than-projected international oil prices and worse-than-anticipated weather conditions due to the emerging La Niña climate pattern, which could result in a more active 2024 hurricane season.

“On the flip side, the factors that could result in lower-than-projected inflation include weaker-than-projected global growth, which could reduce domestic demand and imported inflation. The MPC noted that a decision to reduce interest rates will depend on incoming data related to the risks to inflation noted above,” he shared.

Mr. Byles further indicated that the evolution of wage adjustments, inflation expectations and core inflation are important factors that will guide the MPC’s decisions on policy rate adjustments and other monetary policy actions in the future.

He said the Central Bank will maintain heightened surveillance of the risks to inflation.