As global supply chain disruptions persist, consumers are being told they might have to dig deeper into their pockets to meet their monthly expenses. This in the context of rising commodity prices (oil and grains) and increasing demand as economies reopen, leading to higher domestic transport and processed food inflation.

Notwithstanding, the Bank of Jamaica (BOJ) is optimistic there will not be any further significant increases.

The BOJ is reporting that consumers could get some reprieve in domestic agricultural food prices, a scenario which hinges on weather conditions remaining favourable. The central bank is hopeful that lower agricultural prices will help to temper inflation and keep consumer prices within its four to six per cent target range.

But there’s still a high level of uncertainty surrounding the inflation forecast, especially in the context of the emergence of new variants of the coronavirus. As a result, the BOJ has advised that inflation over the next year could be higher than had been projected.

The central bank noted that inflation in the short term could rise to, or above, the upper limit of the bank’s target range but stressed that this should not persist beyond a year.

That’s why the BOJ’s Monetary Policy Committee (MPC) has decided to maintain its accommodative monetary policy position. That refers to the interest rate on current account balances held by deposit taking institutions at the BOJ. The policy decision for the month of June, which was outlined in a release posted on BOJ’s website, stated that the interest rate will remain unchanged at 0.5 per cent.

In the release, the MPC said it will write to the finance minister to explain the temporary breach of the inflation target in April which came in at 3.8 per cent, which is below the lower limit of the bank’s target range.

Looking ahead, the committee is confident there will not be a similar recurrence in the coming months as a normalisation in the country’s gross domestic product (GDP) growth and some imported inflation are projected to support moderately higher core inflation over the next two years. The outlook for core inflation also contemplated the effects of one-off adjustments to selected regulated price.

The BOJ’s assessment of the risks to the GDP growth forecast suggests that GDP is still likely to fall within the range of 5.0 per cent to 8.0 per cent for financial year 2021/22 but the outlook is now closer to the upper end of the forecast range.

The BOJ said economic activity is expected to improve over the near term, relative to the previous forecast, due to the impact of stronger than expected improvements in the economies of Jamaica’s major trading partners. In this context, high frequency data suggest that growth in the services industry (particularly tourism) has been stronger than previously anticipated.

In addition, there are indications that private investments will be higher than earlier anticipated. However, other high frequency data point to weaker than anticipated performance of selected sectors such as mining.

The central bank highlighted that GDP growth could also be weaker than forecast if there is a third wave of virus infections both locally and in Jamaica’s major trading partners that results in a tightening of restrictions.