FOR more than 40 years inflation was the bane of our daily lives. Between 1974 and 2014, average annual inflation was more than 16 per cent. Price increases would hit us with almost every visit to the supermarket.

In recent years, we managed to tame that monster.

In the five years before the onset of the novel coronavirus pandemic, annual inflation averaged barely over two per cent. The Bank of Jamaica (BOJ) had set a target of four to six per cent and expressed concern that inflation was turning out so low that it was not sufficient to provide the needed stimulus for economic growth.

Then came COVID-19, which disrupted the supply chain of critical commodities. Global production and distribution were affected and ships loaded with containers were piled up for weeks at ports all over the world. The supply and demand relationship which would have resulted in increased prices was tempered by the lockdowns that had the effect of reducing demand.

Once the pandemic started to recede and economies and societies started returning to normal, the pent-up demand put serious pressure on the availability of supplies. The supply chains still have not fully recovered and prices have soared.

Then came Russia’s invasion of Ukraine. Russia and Ukraine are critical to the world’s supply of food. Together they account for almost one-third of the supply of grain. That translates into flour, bread, animal feeds, and a host of other food products that we buy at the supermarkets and grocery shops. Russia is the world’s second-largest producer of natural gas and the third-largest producer of crude oil. The disruption of production and exports in Ukraine and the sanctions imposed on Russian exports have severely affected the supply of these essential commodities. Fuel prices in Jamaica have increased by 35 per cent over the last 12 months, driving up the cost of production and distribution of the things we buy at the shops.

The low-wage earner who finds that the $4,000 she takes to the supermarket can’t buy what it used to buy is not much interested in what is happening in the rest of the world. She is preoccupied with her own economy and how she is going to feed the children at home. She has a Government and the Government is supposed to fix that. Joe Biden, Boris Johnson, and Andrew Holness are all facing the same firing squad.

Not much is spoken about the impact on inflation of the cash transfers that many countries, including Jamaica, made to assist those whose incomes were disrupted by the novel coronavirus pandemic. In our case, several billion dollars were allocated through the COVID-19 Allocation of Resources (CARE) programme to some 350,000 people to cushion the effect of the pandemic. Increased supply of money chasing a reduced supply of goods has only one outcome — inflation. The velocity of that increased money supply is only now subsiding, but the inevitable impact on prices has already been felt.

The United States went overboard. They provided COVID-19 relief cheques worth more than that which many of the recipients were earning. No wonder they are facing a labour shortage. Many recipients found that it was more profitable to stay home than to go back to work.

Some blue skies are beginning to peep out from behind the clouds. Inflation is normally measured by what prices are now compared to what they were a year ago. What we should also pay attention to is the movement from month to month. For example, the consumer price index in Jamaica actually declined for the months of March and April, in comparison to the previous month.

One or two swallows do not a summer make, but this is in line with the trend in the United States and other countries, and some economists suggest that we are approaching a levelling off, although the recent COVID-19 outbreak in Shanghai and what promises to be a long drawn-out war in Ukraine are cause for concern.

The BOJ, which has primary responsibility for managing inflation, has responded to the pressures by increasing interest rates to reduce money supply and demand. Many central banks around the world have done likewise.

Some elements in the private sector are up in arms. What other ideas do they have? Why do they believe that the BOJ should be smarter than central banks in developed, emerging, and developing markets?

Inflation pressures are either cost-push or demand-push driven. The BOJ has no control over cost-push factors. Those have to do with oil and commodity price movements. It can only seek to temper demand by reducing money supply. Increasing interest rates is the mildest means of doing so. A more severe measure would be to increase the banks’ cash reserve requirements, which it does not appear to be contemplating.

One private sector leader insisted that the BOJ should leave interest rates alone and focus on maintaining the exchange rate. The BOJ must be credited for having been able to maintain the relative stability of a floating exchange rate in spite of the inflationary pressures, but since it does not mint US dollars, how else could that have been done without interest rate adjustments? We can’t have our cake and eat it.

There is a whole heap of laws that we have the power to amend. The law of economics is not one of them.

Bruce Golding served as Jamaica’s eighth prime minister from September 11, 2007 to October 23, 2011.