THE Bank of Jamaica (BOJ) is starting to ‘bare its teeth’ at inflation again, signalling in its most aggressive language in more than a year that interest rate increases could resume soon, with inflation expected to remain elevated over the next few months.

Pointing to January’s 7.4 per cent annual inflation rate — the highest in a year — the central bank said its monetary policy committee voted unanimously to keep its policy rate at seven per cent, at least until it meets again in late March. The policy rate has been at seven per cent since November 2022. Keeping the policy rate unchanged aside, the BOJ said it is also committed to “stability in the foreign exchange market” and will “further tighten Jamaican-dollar liquidity conditions”.

But it indicates that that job is getting harder. For the past four months the central bank has had to be dealing with annual inflation rates above the six per cent upper limit set by the Government for price increases. And from what the BOJ is saying, that trajectory should be maintained over the next year and a half.

“Inflation is forecast to remain above the bank’s target range over the March 2024 and June 2025 quarters,” the BOJ wrote in notes accompanying the decisions from its February 16 and 19 monetary policy committee meeting.

Things like a second-round increase in taxi fares come April, and higher wages due to the tightening job market were pointed to as being the culprits for the cloudy forecast for inflation. So too were the impending supply chain issues emanating from a slowdown in shipping through the Panama Canal, as the drought sinks levels in the waterway to historic lows and heightens attacks on ships in the Red Sea by Yemen-based Houti’s. Already, the BOJ points out that “shipping freight rates have recently risen”, adding that it “could eventually affect other prices such as grains and finished goods”. Even considering those things, it said if the taxi fare increases were taken out of the picture, inflation would be within its target range of four per cent to six per cent by December.

That would set the stage for expectations that the policy rate could start easing, signalling to entities in the financial sector that interest rates on consumer loans and those charged in the money and capital markets should start coming down.

But instead BOJ, while noting as normal that its future decisions will continue to be dependent on incoming data, added language speaking about “further interest rate increases” if inflation materialises as forecast, which marks a change in language. It is the first time such strong discourse has been used in BOJ releases in more than a year. The central bank has often deferred to using subtle and vague language when it comes to talking about interest rate increases in particular.

Of course, things could go the other way. Global growth could slow, which could have a knock-on effect on growth locally, and slow demand and price increases. It could also result in Jamaicans importing less and therefore importing less-inflated prices.

On a brighter note, BOJ said its estimate is that growth continued in the one to three per cent range in the December quarter. And it said that “there are signs that the economy continued to expand in the [current] March 2024 quarter.”

The expectation is that the growth will continue in line with forecasts for the net two years — that is, hovering just between 1 and 2 per cent.