The Bank of Jamaica (BOJ) has missed its inflation target for the 12 months leading up to April 2021.

As required under the BOJ Act, the central bank through its governor will provide a report to the minister of finance within the next 60 days explaining, among other things, the reasons for the inflation target for April being missed. As reported last week by the Statistical Institute of Jamaica, Jamaica’s inflation for the 12 months leading up to April 2021 was 3.8 per cent.

This was just below the lower end of the BOJ’s inflation target and lower than the 5.2 per cent recorded for March 2021. In confirming that the BOJ missed its inflation target, the bank’s governor, Richard Byles, advised that, “the deceleration in inflation was mainly related to a reduction in electricity rates.”

Speaking at his quarterly news briefing last Friday, Byles reported that core inflation (which excludes increases in agriculture and fuel prices) for the 12 months leading up to April 2021 was, however, 5.5 per cent up from 5.3 per cent in March. This increase was in part attributed to a rise in processed food inflation.

Success in guiding inflation

Governor Byles was quick to point out that the BOJ “continues to be very successful in guiding inflation within the four – six per cent target range. Over the past 40 months leading up to April 2021, inflation has been below 6.0 per cent (which is the upper bound of the target range) on 38 occasions, or 95 per cent of the time.”

He emphasised that, “as I have said in the past, the main reason for inflation going above the target on the two occasions was temporary increases in agricultural prices due to either droughts or floods. On the flip side, inflation fell below the lower end of the target on 15 occasions over the period, again mainly due to volatility in agricultural prices as well as declines in international oil prices.”

Going forward, the new Monetary Policy Committee (MPC), which sets the island’s inflation targets, anticipates that annualized consumer price inflation will evolve as follows over the next three quarters:

June 2021 3.5 – 4.5 per cent

September 2021 4.5 – 5.5 per cent

December 2021 3.5 – 4.5 per cent

Inflation near term out

Byles told business journalists that the near-term outlook is lower than the one share in February 2021, highlighting that the change is primarily related to the updated view of the MPC that agricultural price increases over this period will be smaller than previously anticipated. This is so given expectations for better weather conditions.

Recently announced price increases for some processed foods, driven by higher imported commodity prices and shipping costs have been taken into account. Beyond this horizon, the MPC forecast is for inflation to remain within the target range of four to six per cent.

Inflation is projected to average 4.8 per cent over the next two years, a forecast that anticipates that commodity (oil and grains) price inflation will not rise much beyond current levels. In addition, Governor Byles explained that the MPC anticipate that this will directly affect domestic transport and processed food inflation.

In contrast, inflation is expected to be tempered by subdued domestic agricultural food price inflation. He noted that a resumption of domestic GDP growth and some imported inflation are projected to support moderately higher core inflation over the forecast period.

However, the outlook for core inflation also contemplates the effects of one-off adjustments in selected regulated prices. The risks to the inflation forecast are, however, skewed upwards., as these upside risks could cause inflation to be higher, include a stronger than anticipated impact of international commodity prices on domestic prices.

Lower than anticipated agriculture inflation in the June and September 2021 quarters is a downside risk.