Inflation returns to target range at 5.8%
The price of goods and services fell for the month of April 2023, causing the country’s annual inflation rate to settle within the Bank of Jamaica’s target range for the first time in two years.
Consumer prices dropped by 0.4 per cent for the month of April 2023, after marginally rising in March, the Statistical Institute of Jamaica, Statin, reported on Monday.
The deceleration pushed annual inflation down to 5.8 per cent, landing in the upper band of the 4 to 6 per cent inflation target range that the central bank is mandated to defend.
The new inflation outturn was primarily as a result of a 4.2 per cent fall in the index for the division ‘Housing, Water, Electricity, Gas and Other Fuels’, Statin said in its report.
Reduced rates in electricity resulted in a 12.5 per cent fall in the index for the group ‘Electricity, Gas and Other Fuels’; meanwhile, the ‘Transport’ division also fell, moving down by 0.1 per cent.
“This was mainly due to reduced costs of petrol and air travel. However, the overall decrease in the CPI was offset by the 0.6 per cent increase in the index for the ‘food and non-alcoholic beverages’ division, as prices continued to trend upward for some agricultural produce, namely, sweet potato, yam, lettuce, and tomato,” Statin said.
April’s inflation outturn marks the fifth consecutive period of decline for the country after a brutal 2021/22 that was roiled by interest rate hikes, COVID-related shutdowns and geopolitical tensions.
The new data will influence the decision of the BOJ Monetary Policy Committee, which issue its next interest rate decision on Friday, May 19. The central bank has been holding the policy rate steady at 7.0 per cent since last November, but there is already an expectation that this time the central bank might loosen its tight grip on money flows.
President of the Jamaica Manufacturers and Exporters Association, John Mahfood, reckons that the continuous fall in inflation over the past five months will be sufficient to get the committee to lower policy rates at its upcoming meeting.
But the BOJ is not fully convinced that the country is in the clear, pointing out in recent reports that “there are still risks to inflation” and, as such, “monetary policy must remain suitably calibrated”.
Still, the central bank says it will, at its next meeting, take on board the new developments, updated projections and associated risk assessments.
Globally, countries have continued with rate hikes since the start of the year as a means of combating stubbornly high inflation, although decelerating. Large economies like the United States have seen inflation moderating somewhat since the middle of last year, but the country has a long way to go before getting inflation back down to the Federal Reserve’s 2.0 per cent target.
During its May meeting, the Fed raised the rate by 25 basis points to a range of 5 per cent to 5.25 per cent, marking the 10th increase and bringing borrowing costs to their highest level since September 2007. They will meet again on June 13-14 to decide on whether to raise interest rates for an 11th consecutive time or pause the tightening cycle.
The US central bank had earlier signalled that it may be done with a tightening cycle, but Fed officials on Monday said the data since the last meeting showed a continued strong job market, but little progress on the inflation front, saying risks from ongoing banking sector stress and a possible US debt crisis suggested the need for caution.
Jamaica takes much of its cue from the US, which is the country’s top trading partner.