August 21, 2023
The Monetary Policy Committee (MPC) of the Bank of Jamaica (BOJ) unanimously decided to maintain the policy interest rate at 7%. The committee’s decision to maintain the rate represents their view of material success in controlling core inflation (which excludes food and fuel prices) aided by the Bank’s management of the exchange rate and liquidity. Notably, core inflation at July 2023 slowed to 5.2% relative to 8.4% recorded at April 2022. Additionally, the annual headline inflation rate at July 2023 of 6.6% was much lower than the peak rate of 11.8% recorded at April 2022.
Notwithstanding, headline inflation recorded for July 2023 is moderately higher than the 6.3% recorded for June 2023 and reflects the effects of specific shocks. The MPC highlighted that while the key drivers of headline inflation (grains prices, shipping costs and inflation expectations) continued to fall, there were significantly higher agricultural prices recorded in June and July 2023, reflecting the effects of prevailing high temperatures.
Simultaneously, the Jamaican economy continues to expand supporting increases in aggregate demand for goods and services. Gross domestic product (GDP) for the June 2023 quarter is estimated to have grown within 1.0% to 3.0%, and there are signs that the economy expanded in the September 2023 quarter.
Inflation is expected to move upwards for the remainder of the September 2023 quarter, driven by higher agricultural prices, higher education costs and wage pressures. Despite this, inflation is projected to gradually decline to the Bank’s target range of 4.0% – 6.0% by the December 2023 quarter and predominantly remain there in 2024.
However, inflation could increase above this projection. Higher-than-projected future wage adjustments in the context of the tight domestic labour market, second-round effects from the agricultural price inflation, a worsening in supply chain conditions and an elevation of world oil prices could potentially put further upward pressure on inflation.
Future monetary policy decisions aimed at returning inflation to the Bank’s target range will depend on incoming data. BOJ will continue to closely monitor the global and domestic economic environments for potential risks to Jamaica’s inflation rate.
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