A decline in the price of electricity and petrol helped to push inflation within the Bank of Jamaica’s (BOJ) target range for the first time in almost two years, but analysts say the reduction in the pace of price increases will have to be sustained for a few months before the interest rate-setting Monetary Policy Committee (MPC) will even start mulling a reversal in interest rates.

The Statistical Institute of Jamaica, the body which collates and distributes inflation data for the country, said on Monday that inflation — which measures the pace at which prices rise — was 5.8 per cent in the 12 months to April. That was down from 6.2 per cent in March and the lowest pace of price increases for a 12-month period since July 2021. The BOJ targets price increases in the range of 4 per cent to 6 per cent.

Still, the pace of decline in the inflation rate has been faster than the BOJ expected. In February 2023 the central bank projected that headline inflation would fall within the 4 to 6 per cent target range by December 2023. But as international commodity prices — particularly for food and fuel — decline, Jamaica’s inflation rate has been falling faster. In April the decline was caused by lower fuel prices driving down the cost of electricty, petrol and air travel — enough to offset an increase in the price of food during the month. Overall, for April alone, prices were down 0.4 per cent

But analysts have hesitated to declare victory, especially given that the prices of various food items — yam, sweet potato, lettuce, tomato, cereal, meat, milk, eggs and soft drinks — continue to increase.

“I think the BOJ would want to see inflation sustained for at least six months in 4 per cent to 6 per cent range, and preferably closer to the 4 per cent floor,” Kwame Brooks, country treasurer for the JMMB Group, said. Brooks said if inflation continues in the desired range the BOJ could start cuttnig rates about October or November.

Still, in cutting rates the central bank has more issues than just the dip in fuel prices to consider. One issue which the central bank has often pointed to, as it raised rates between September 2021 and January 2023, is the level of interest rates in the United States and how that may impact investment decisions in Jamaica and, ultimately, the value of the Jamaican dollar.

The head of the Federal Reserve, Jerome Powell signalled this month that officials believe they may have done enough to get inflation under control and could be ready to pause their programme of rate rises. This language is now being carefully watched by the BOJ ahead of its own rate-setting meeting later this week, which will be announced on Friday.