INFLATION in Jamaica continued in the target band for a fourth-straight month in June, a sign that the worst price spike in the country in more than decade is steadily fading and may soon usher in interest rate cuts by the Bank of Jamaica (BOJ).

Data released by the Statistical Institute of Jamaica (Statin) Wednesday showed prices, measured from one year earlier, were up 5.4 per cent, a slightly faster pace of increase than May’s 5.2 per cent, but still within the 4 per cent to 6 per cent band targeted by the central bank. The one-year price increase has been within the band over the four months March to June. This is the first time in three years in which inflation has stayed within the target band for four straight months. The last time this happened was from April 2021 to July 2021, before price increases pushed the BOJ to start hiking its policy rate before pausing it at 7 per cent in November 2022.

Yet, two out of three players in the financial sector responding to a Jamaica Observer survey said they still do not expect to see the central bank starting to cut rates when its monetary policy committee (MPC) meets next on August 20. The others say some easing may start then, while the biggest bet is that rate cuts will start in September, if the current trajectory with inflation holds. It is too early to assess the impact Hurricane Beryl will have on prices.

Adrian Stokes, a financial economist and chief executive officer of Quantas Financial Group, an alternative investments management business, said that while the hurricane could impact agricultural prices, “this is expected to be transient and really shouldn’t impact monetary policy”.

He argued the overall trajectory of price increases over the last four months show “the global inflation impulses that drove price rises in Jamaica have now fully abated”, telling
BusinessWeek, “this means we will continue to see the price level growing at a fairly modest pace”.

Yet for him, the biggest issue is the “real risk” the country faces from a “material slowdown in economic growth” emanating from the prolonged period of high interest rates.

Unemployment was last measured at 5.4 per cent, though it’s hard to ascertain if it is higher than the near historic low it was a year earlier, since the way in the which the data are measured was changed. But the economy is showing visible signs of slowing with growth measured at 1.4 per cent in the first quarter of the year, compared to 4.2 per cent a year earlier.

But even as inflation continued to slow, the cost of food, transport and electricity remains higher than they were before the pandemic.

Food prices rose 4 per cent in the last year while rising rent and electricity costs meant household expenses were up 5.4 per cent. Health-care costs were 4.4 per cent higher while the cost of education went up 15.6 per cent. Transportation costs on the other hand went up 11.1 per cent, in the last year due mainly to the lingering impact of fare increases.

Still, inflation is now far below the peak of 11.9 per cent recorded in April 2022.

Over in the United States, analysts are expecting the Federal Reserve to start cutting rates in September, with prices pressures seemingly abating, though inflation still hovers above the 2 per cent mark. By the Feds preferred gauge, inflation is running at 2.6 per cent.

Here in Jamaica, the central bank has already signalled rate cuts could happen this year, depending on the data, but has already started to ease pressure in the market by cutting back on how much money it absorbs from the market. Increasing money supply should, in theory, result in banks reducing interest rates to get people to borrow.