THE Bank of Jamaica (BOJ) is warning households to budget for higher food and utility bills, and businesses to prepare for elevated input costs in 2026 as it projects a sharp rise in inflation driven by the impact of Hurricane Melissa. The central bank says price increases are not expected to return to its four to six per cent target range until 2027.

The warning comes even as the country has enjoyed relatively low inflation below six per cent for the past two years — since September 2023. According to the Statistical Institute of Jamaica (Statin), point-to-point inflation for October 2025 was 2.9 per cent, with the Consumer Price Index (CPI) showing modest increases in most categories. But the BOJ says that run of stability is now under threat as the country continues to absorb the economic shock from the Category 5 hurricane that made landfall on Jamaica’s south-western coast then travelled north on October 28.

“Annual headline inflation will rise sharply from 2.9 per cent, its outturn at October 2025, and will exceed the bank’s inflation target of four to six per cent over the near-term,” the central bank said in its monetary policy release Monday.

The problem is expected to extend well beyond short-term food shortages. The bank expects core inflation — which strips out volatile food and fuel prices — to also “rise, breaching the target range in mid-2026”. For consumers, this means the cost of a wide range of services, from a haircut to a restaurant meal, is likely to climb steadily throughout next year.

This indicates that the inflationary shock from the hurricane is set to become broad-based, rippling out into wider categories of goods and services such as routine household maintenance, transport services and personal care items.

The inflation warning comes against a backdrop of severe economic disruption. The bank notes that the economy is projected to contract significantly in the near term due to “extensive damage to infrastructure and disruption to productive activity and livelihoods”.

Statin’s October CPI already reflects early signs of these pressures. Food prices rose 1.5 per cent in the month, driven by a 5.5 per cent surge in vegetables, tubers, plantains, and pulses — including notable increases in carrots, cabbage, pumpkin, sweet potato, and tomato. Electricity costs also increased, contributing to a 0.8 per cent rise in the Housing, Water, Electricity, Gas and Other Fuels division.

These categories — food and utilities — were the same ones the BOJ identified as most likely to come under sustained pressure following the hurricane.

Compounding the issue, the Government has signalled a temporary suspension of its fiscal rules to fund relief and reconstruction. While necessary, this surge in public spending will inject more money into the economy, creating additional inflationary pressure.

Faced with the dual challenge of a shrinking economy and rising prices, the Bank of Jamaica has chosen a middle path. Following meetings on November 20 and 21, its policy committee decided to maintain the key interest rate at 5.75 per cent, a level it has held steady since a cut in May 2025. Simultaneously, it is rolling out special measures to stabilise the foreign exchange market and ensure the availability of foreign currency for critical imports.

The decision to hold rates reflects the view that the initial inflation spike is primarily a supply-side shock. This places Jamaica on a different path than other major central banks, like the US Federal Reserve, which is cutting rates,, and the Bank of Japan, which is debating a hike.

The BOJ’s stance acknowledges that higher interest rates cannot directly fix broken supply chains and could further stifle economic recovery. Instead, the central bank is focusing on ensuring stability in the foreign exchange market to prevent a depreciating Jamaican dollar from importing even more inflation.

To this end, the BOJ has already sold US$210 million to the market since the hurricane and will now take further steps. These include providing foreign currency directly to selected energy sector entities and reintroducing scheduled advanced notices of its foreign exchange intervention sales to proactively ensure adequate liquidity.

The central bank is prioritising foreign exchange stability because a falling Jamaican dollar would make critical imports for reconstruction — from lumber and hardware to fuel — even more expensive, dangerously compounding the inflation problem.

The BOJ reaffirmed its commitment to its inflation target and is prepared to adjust its stance, potentially raising interest rates, if the inflationary risks escalate further. The public can expect heightened scrutiny of price movements, with the central bank’s next policy decision announcement scheduled for December 18, 2025.