February 21, 2024
In January 2024, Jamaica’s headline inflation rose to 7.4%, surpassing the central bank’s target range of 4.0 to 6.0%. This increase was driven by higher regulated prices, including a recent public transportation fare hike and widespread wage growth. Despite some offsetting factors like reduced transit fares, core inflation (excluding food and fuel) stood at 5.9%, consistent with the 2023 average but lower than previous years.
The long-term inflation outlook is generally positive, supported by stable factors like inflation expectations, exchange rates, and declining grain prices. However, due to projected impacts, including the second phase of public transportation fare increases in April 2024, inflation is expected to remain above the target range from March 2024 to June 2025.
Risks to inflation include potential second-round effects of fare increases, higher wage adjustments, and supply chain disruptions. Geopolitical tensions and shipping freight rate increases may contribute to higher inflation. Conversely, weaker global growth could result in lower-than-expected inflation.
The Monetary Policy Committee (MPC) unanimously decided to maintain the policy interest rate at 7.0% and stability in the foreign exchange market. However, they opted to further tighten Jamaican dollar liquidity conditions. The decision was informed by the growing Jamaican economy, with estimated GDP growth and a record-low unemployment rate of 4.2% as of October 2023.
The risks to Jamaica’s GDP forecast over the next eight quarters are assessed as balanced, with potential headwinds in tourism and positive factors like increased investment. The MPC noted the resilience of the US economy, projecting a slowdown in 2024 due to factors like high inflation, tight monetary conditions, and reduced fiscal support. The domestic banking system is sound, and fiscal policy poses no immediate risk to inflation.
Future monetary policy decisions will hinge on incoming data related to inflation risks, and the MPC remains committed to utilizing all available tools, including potential interest rate increases, to address inflationary pressures if the outlined risks materialize.
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