THE Bank of Jamaica (BOJ) on Wednesday rubber-stamped the Government’s decision to give the JUTC an extra $1 billion in support to pay for fare reductions, arguing that it will cushion the rise in inflation expected from the recently announced fare hike for privately owned public passenger vehicles (PPVs).

The JUTC will get the money over a 15-month period from January 1, 2024 to March 31, 2025. It is hoped that lower fares on JUTC buses will attract more commuters to the State-owned bus service and, by extension, cushion annual inflation which is forecast could go as high as seven per cent over the said period.

Just days ahead of Finance Minister Nigel Clarke’s announcement of an up to 30 per cent reduction in fares to JUTC passengers, the BOJ’s monetary policy committee (MPC), at its meetings on 17 and 20 November 2023, unanimously agreed to keep its key policy rate at 7 per cent, at least for the next eight weeks until it meets again to review the decision. That rate is what the central bank applies to funds it has for deposit-taking institutions and is used as a benchmark for setting interest rates for various loan and savings products offered by banks throughout the economy.

Overall, the BOJ had predicted that the increased burden on consumer pockets from the higher fares would cause inflation to rise by approximately two per cent, with monthly inflation for November expected to climb between 1 and 1.5 per cent compared to 0.8 per cent at the end of October.

Inflation was projected to average 6.0 to 7.0 per cent over the next eight quarters — December 2023 to September 2025 — which is higher than the previous eight-quarter average of 5.5 per cent but lower when compared to the average inflation rate of 8.4 per cent over the past two years. The projections also showed that it would have taken as long as March 2026 before inflation converged to about 5 per cent on a sustained basis.

However, on Wednesday the central bank shared that upon incorporation of the impending fare reduction in its data it expects that Jamaica will maintain inflation within the prescribed rate of four to six per cent for the better part of the next 18 months.

The annual point-to-point inflation rate at September 2023 was 5.9 per cent and marked the first time in five months that inflation fell within the central bank’s target range. It was also the lowest out-turn since June 2021. The deceleration in inflation continued through to October when it landed even lower at 5.1 per cent.

“When the MPC met we had no information about the Ministry of Finance’s decision to bring down JUTC fares, and in the absence of that our model did say that inflation would accelerate above the corridor from this year right through to March of 2025. That is the profound effect that the fare increase would have had — both individually or the knock-on effect,” BOJ Governor Richard Byles said while explaining that the increased fare rates would, over time, result in employees demanding more money from their employers, ultimately leading to a “second-round effect” of price increases.

“Having the commitment from the ministry we think that we will settle back down within that four to six per cent corridor, with exception maybe for December and one or two months next year when we normally have a spike in inflation due to a number of things, not the least of which is weather-related,” Byles said.

Recent rains expected to throw off December, January 2024

Agricultural products account for about 9.5 per cent of total consumer spending. The BOJ said its baseline forecast was that agricultural prices would start to fall, before last week’s heavy rains.

“The drought impacted production but we were coming into the favourable weather conditions that resulted in improvements in agricultural supplies. Our baseline forecast saw where, for December, there would have been some improvement on a quarter over quarter basis — and consequently we were anticipating that agricultural prices would start to fall,” Deputy Governor Robert Stennett said.

But the recent heavy rains from a tropical disturbance moving across the western Caribbean has kicked those projections out.

“All of that is now off the table. We are awaiting the data to make a better assessment but our underlying assumption is that it’s going to derail the declines we saw,” he continued.

Agricultural prices marginally dipped in September but rose 0.7 per cent in October due to a similar 0.7 per cent increase in the index for the group ‘Food’, according to data from the Statistical Institute of Jamaica. The State agency said the increase was mainly due to higher prices for some agricultural products, namely Irish potatoes, sweet potatoes and carrots.