JAMAICA’S annual inflation rate has dipped below the Bank of Jamaica’s (BOJ) 4 to 6 per cent target band for a second-consecutive month, registering at 3.3 per cent in July 2025 in what analysts say could open the door for more aggressive monetary easing.

The latest data from the Statistical Institute of Jamaica (Statin) show that prices rose by 0.3 per cent in July, driven mainly by a 0.9 per cent increase in food and beverage costs and a 0.4 per cent rise in the transport index — largely due to higher petrol prices. However, a 0.8 per cent decline in the cost of housing, water, electricity, gas and other fuels helped offset those gains, with lower electricity rates leading the pull back.

While July’s inflation was marginally higher than June’s 0.3 per cent decline, the point-to-point out-turn, measuring the change in prices from July 2024 to July 2025, is what’s commanding attention.

“With point-to-point inflation falling below the target band for both June and July, I expect the BOJ will be moved to be a little more aggressive in reducing its interest rates,” economist Keenan Falconer told the
Jamaica Observer.

“Consumer spending has softened recently despite the initial recovery from Hurricane Beryl earlier this year, which could be an indication of weakening aggregate demand and which has been reflected in the inflation out-turns,” he continued.

Falconer added that the BOJ may soon shift from a gradual approach to more decisive action in lowering its benchmark interest rate and supplying greater liquidity to the market — steps he believes could stimulate stronger economic growth.

Inflation in Jamaica has cooled in 2025, with consumer prices falling in four of the first seven months. July’s modest rise of 0.3 per cent comes after declines in April and June, part of a broader trend of slowing price growth — even as food and petrol prices remain volatile.

The largest point-to-point price increases came from the Food and Non-Alcoholic Beverages category, up 3.7 per cent, and Restaurants and Accommodation Services which jumped 6.3 per cent, owing to higher meal prices at fast-food restaurants and cookshops.

On the other hand, energy-related costs, specifically under Electricity, Gas and Other Fuels, fell by 2.9 per cent month over month in July.

Despite the downward movement in headline inflation, monetary policy may not shift swiftly. Economist Dr Adrian Stokes cautioned that while local indicators support a rate cut, global dynamics could stall the BOJ’s hand.

“Good news for consumers that prices for goods and services have moderated when compared to two years ago,” Stokes told Sunday Finance.

“Under normal circumstances this would have given the BOJ room to reduce its policy rate further to add impetus to the local economy. However, the BOJ’s policy stance is being confounded by mixed economic data coming out of the US.”

He pointed specifically to the US Federal Reserve, which has kept its policy rates unchanged as it navigates slowing economic growth alongside the risk of rising prices due to new tariffs. “It seems the BOJ is unwilling to cut its policy rate further while the US Fed remains on hold. This is the key policy conundrum the BOJ has to navigate,” Stokes noted.

Still, Falconer believes the BOJ remains well-positioned to manage any fallout.

“With FX [foreign exchnage] reserves at a sufficiently healthy level, the bank is well-placed to continue to respond in an agile manner to any adverse fluctuations in the FX market,” he said.

The BOJ last adjusted its policy rate to 5.75 per cent in May, cutting it by 50 basis points after holding steady for nearly a year. In June it held rates steady at 5.75 per cent, citing a backdrop of heightened global uncertainty and inflation risks. Market watchers are now looking to the bank’s next policy decision, due August 20, for signs of a more pronounced shift in its monetary stance.

Low-wage jobs

At the same time, the unusual combination of record-low unemployment, subdued inflation, and sluggish growth is raising questions about the underlying strength of the recovery.

“Typically, inflation and unemployment would share an inverse relationship,” Falconer said. “So, record low unemployment with inflation also being simultaneously low would tend to indicate that not enough money is circulating in the economy to drive economic growth and consequently the higher inflation that necessarily accompanies it.”

He added: “As a result, it could be inferred that a significant portion of the addition to employment over the period that inflation is low and stable would be in lower-wage jobs.”

Dr Stokes offered a complementary view, noting that the link between jobs and prices isn’t always straightforward.

“Low unemployment doesn’t necessarily lead to higher inflation. This is particularly true if the growth in real wages is not outstripping the capacity of the economy to produce goods and services,” he said.

FALCONER… with point-to-point inflation falling below the target band for both June and July, I expect the BOJ will be moved to be a little more aggressive in reducing its interest rates

STOKES…it seems the BOJ is unwilling to cut its policy rate further while the US Fed remains on hold.