By Judana Murphy
KINGSTON, Jamaica, (JIS) – The Bank of Jamaica (BOJ) is projecting that inflation will average 5.9 percent over the next two years. Governor, Richard Byles, advised that this forecast is below the previous projection of an average of 7.4 percent.
“It is projected that following possible temporary breaches of the upper limit of the target in the June and September quarters of this year, inflation will return to the target range by the end of December 2026 quarter,” he said, addressing the Quarterly Monetary Policy Report press conference at the BOJ auditorium in downtown Kingston on Tuesday (February 24).
The Central Bank Governor reasoned that this earlier-than-previously-anticipated return to target, reflects a moderation of the Bank’s forecast for later or second-round price increases, given the improved outlook for key domestic indicators.
“While the baseline forecast does not explicitly include the Government’s recently announced tax package, our simulation suggests that its impact may not materially disrupt the projected return of inflation to the target range,” Byles said. He noted that the Monetary Policy Committee (MPC) assessed that there are both downside and upside risks to the inflation forecast.
On the downside, inflation could be lower due to a slower-than-anticipated recovery in domestic demand. On the upside, high inflation could result from bad weather as well as higher-than-projected inflation expectations.
In addition, he explained that upward price pressures may arise from increased overall domestic spending amid the post-hurricane recovery efforts.
“In particular, the government’s temporary suspension of the fiscal rule will allow for fiscal deficits over the next three years. To the extent that these deficits support capital projects and other recovery spending, public-sector demand could place pressure on the country’s productive capacity, which may contribute to higher second-round price pressures,” Byles said. The Central Bank Governor said this risk underscores the need for a cautious approach to monetary policy.
