THE International Monetary Fund (IMF) says “further tightening” of monetary policy may be needed if the Bank of Jamaica (BOJ) is to bring inflation down from its eight-year high.

A worsening surge in consumer prices – led chiefly by higher prices for food and transport – pushed inflation to 8.5 per cent in October, leaving families facing the steepest rise in cost of living since 2013. Everything, from meat to agricultural produce to baked products, has gone up multiple times in the last few weeks, leaving consumers facing a gloomy Christmas.

The inflation picture led the IMF, in its latest Article IV Consulation – the Fund’s assessment of the country’s economic and financial developments – to forecast that even after a 100 basis points uptick in its policy rate on October 1 to 1.50 per cent, “further tightening may be needed, to firmly anchor inflation expectations, underline the central bank’s commitment to its inflation goal, and bring inflation to within the target range by end-2023”.

The report was published on Wednesday, November 17 and did not mention the central bank’s 0.5 per cent increase in its policy rate a day earlier. That increase took the benchmark rate to 2.0 per cent, its highest level since 2018. The BOJ has since signalled that it could raise rates further when its monetary policy commitee (MPC) meets on December 20.

“Even if the current shocks are transitory and longer-term inflation expectations have not been affected (which is hard to gauge as no survey of inflation expectations beyond 12 months exists), further rises in inflation that are not accompanied by a monetary policy response could de-anchor the expectations and jeopardise the inflation’s return to the BOJ target range,” the Fund said in the report. The notes suggest the IMF is clearly in support of future rate hikes to control runaway price increases. It said it expects inflation to reach 8.8 per cent by year-end before receding to 6.7 per cent at the end of next year. Worryingly, it said “there are significant risks that inflation may be higher”. The BOJ said it expects prices to rise in the range 8 to 9 per cent in the next 10 to 12 months.

However, despite the IMF prodding the BOJ to prepare to tighten policy further in case inflation gets out of control, Opposition spokesman on Finance Julian Robinson is not seeing eye-to-eye with the policy. Robinson, in a media release yesterday, said “raising interest rates will not have the desired impact of reducing inflation”, citing months-old commentary, both locally and overseas, that higher consumer prices are being driven by international supply chain constraints which will soon abate. He said the BOJ’s action will result in higher cost loans which “will be a devastating blow for manufacturers and producers” and could hit an economy “struggling to return to pre-pandemic levels”.

“Global inflationary pressures may last longer and be more intense than we currently expect, and pass-through of global food and energy prices to local inflation (which has weakened in recent years) may be stronger than projected,” the IMF, however, noted.