THE Bank of Jamaica (BOJ), said it will keep its key policy rate steady at seven per cent for at least the next eight weeks, on concerns that Jamaica’s inflation could move outside of its target range of 4 per cent to 6 per cent over the next 15 months from December 2023 and March 2025 quarters. The central bank is scheduled to meet again on December 20 to assess that decision again based on incoming data.

The announcement comes despite two consecutive periods of ‘successes’ in Jamaica’s inflation rate, according to the BOJ’s standard, data which may have incited confidence for a turn in the monetary policy cycle that has stayed steady at seven per cent since December 2022.

Jamaica’s annual inflation rate at October 2023 of 5.1 per cent was below the 5.9 per cent at September 2023, the out-turns for the previous four months, and also much lower than the peak rate of 11.8 per cent recorded at April 2022.

It marks the third time since April 2023 that inflation fell within the target band of four to six per cent.

But the BOJ has new concerns, and chief among them is a projected acceleration in inflation primarily from the announced increases in selected public passenger vehicle (PPV) fares in October 2023 and April 2024. Its forecast also assumes that oil prices will be elevated over the next three quarters — that is December 2023 to June 2024.

The Government’s planned increase of 19 per cent in public passenger fares (PPV) took effect in October, and a further 16 per cent increase was also announced to take effect in April 2024. The fare measures excluded Jamaica Urban Transit Company (JUTC) and the Montego Bay Metro so as to mitigate the impact on consumers.

But in a new development Finance Minister Nigel Clarke says the Government will take steps to ease the fare review’s impact on the overall inflation rate through the temporary reduction in JUTC public passenger fare charges effective January 1, 2024.

Public passengers will benefit from an up to 30 per cent reduction in fare charges effective January 1, which will be followed by another reduction of up to 28 per cent in April 2024.

The changes come amidst warnings from the BOJ that the previously set increases in PPV fares is expected to cause a reversal of the downward trend in annual inflation, starting in November 2023. Moreover, the BOJ had advised that given that the cost of transportation services’ significant weight on the Consumer Price Index or CPI basket, the announced increases in taxi fares, cumulatively, would add approximately two percentage points to inflation if not balanced by countervailing measures.

The first increase in October is expected to directly result in a significant spike in the CPI, leading to a monthly inflation rate for November of between 1 and 1.5 per cent, which in turn will increase the 12-month point-to-point inflation out-turn as compared with the October result.

“The GOJ is very much mindful of the impact of the PPV increase on the cost of living and also the need to support the Bank of Jamaica in its efforts to return and keep inflation within the four per cent to six per cent range rate,” Minister Clarke said in his presentation.

The changes will last for up to two years, after which fares will need to be adjusted upwards and returned to existing levels.

Still, former president of Jamaica Manufacturing and Exporters Association (JMEA) John Mahfood is not convinced that the measures being taken by the Government are enough to keep inflation within the target range over the coming months. In fact, he labelled the move as a “political ploy”.

“The Government has been holding strain in a number of areas and have not done a lot for the people at the bottom at the ladder but now they have done this, effective January 1, when we know the local lovernment elections are early next year,” Mahfood told the Business Observer.

He added that JUTC was already losing billions and that the financial losses will be compounded by Government’s decision to subsidise the reduction in fare rates. It was last reported that the bus company was looking to rack up $11 billion in losses for the 2024/25 financial year.

“The rest of taxpayers have to pay for that so I think that is a strictly political move and it probably won’t solve the inflation problem,” Mahfood added.

He has, however, supported the BOJ’s decision to hold interest rates steady, noting that the although the inflation rate is within the band that the BOJ has set for the last two consecutive quarters, it is coming down slowly.

“We are still in a fragile situation because events outside of Jamaica including shipping costs, the war in Ukraine which will impact gas prices, and the war between Israel and Hamas. So we are still in a difficult situation.

“The impact that these massive increases that the Government [gave] to the public sector and to themselves, as well as the security guards, all of these internal things that we have done is impacting inflation,” he added.

The BOJ, in its decision to hold the rate steady at seven per cent, said while grains prices, shipping costs and inflation expectations continue to decline, international oil prices have trended higher than the bank’s forecast, mainly due to the impact of geopolitical tensions and production cuts by major oil producers.

Meanwhile, the BOJ has reported that the local economy continues to show signs of expansion. Gross domestic product (GDP) for the September 2023 quarter is estimated to have grown within the range of 1.0 to 3.0 per cent, and there are signs that the economy will continue to expand in the December 2023 quarter, the BOJ says. Internationally, it says the country’s risks to the outlook for the US economy are balanced.