CONSUMER prices broadly moderated in October as Jamaicans paid less for petrol, and the annual rise in headline inflation was the smallest it has been in 28 months, prompting the view that the Bank of Jamaica (BOJ) will back off its talks of a new round of rate hikes as the outlook for price increases left it concerned.

At the end of its September meeting, the central bank, in notes accompanying its decision then to hold its policy rate at 7 per cent for at least the next eight-week period until it meets again, said it was prepared "to take the necessary actions, including further tightening of monetary policy if the emerging risks to inflation materialise. That meeting is set to take place on Monday and Tuesday next week, with the central bank expected to communicate its decision late Tuesday afternoon. The policy rate has been at 7 per cent since November 2022.

But ahead of that meeting, data from the Statistical Institute of Jamaica (Statin) show the rate of price increases in the 12 months leading up to October was 5.1 per cent, the lowest it has been since prices rose at a rate of 5 per cent between May 2020 and May 2021. In October alone, consumer prices rose an average 0.8 per cent.

Most of October's inflation was attributed to higher costs for electricity, water, and sewage. The index for food prices rose as well, impacted by higher prices for some agricultural produce, such as Irish potato, sweet potato, and carrot. Restaurant meals, which have seen price increases more than twice the headline rate in the last year, went up further in October, but all were moderated by a dip in petrol prices as data showing a slowdown in China, the world's second largest economy, and a dip in US industrial production, tied mainly to the strike by auto workers in that country, caused oil demand to decline.

How Organization of the Petroleum Exporting Countries (OPEC) reacts to the lower prices for oil at its November 26 meeting is key, as the organisation still believes speculators are driving the market, which may prompt it to do something to stop the freefall. The West Texas Intermediate oil contract for delivery in December fell US$3.76, or 4.9 per cent, to settle at US$72.90 a barrel, while the Brent January contract tumbled US$3.76, or 4.63 per cent, to settle at US$77.42 a barrel. US crude and the global benchmark hit their lowest level since early July.

"Conditions globally and locally do not support further monetary tightening," Dr Adrian Stokes, a financial economist and CEO of Quantas Capital, told the Jamaica Observer in response to the data. Pointing to the dip in inflation to 5.1 per cent, Stokes, who largely disagreed with the rate hikes between 2021 and 2022, noted that "domestic inflation has come down in line with the global factors that led to the material increase we saw over the last two years". For him, that means "the next move by the central bank is likely to be a rate reduction". Stokes didn't say when that might happen. The BOJ has often said its decisions will be driven by incoming data.

Others, such as the country treasurer for the JMMB Group Kwame Brooks was less strident.

"The BOJ will only reduce its benchmark rate if there's a reduction in US Fed rates or demonstration that Jamaica's inflation is now sustained in its target range of 4 per cent to 6 per cent," Brooks told the Caribbean Business Report. He said he believes conditions in the US will see the Federal Reserve, the US central bank, electing to hold its policy rates at its next meeting, with the expectation that the BOJ will do the same. Apart from local inflationary pressures, the BOJ also keeps its policy rate above that in the US to mitigate the risk of capital flight.

Still, much of what the central bank will do with interest rates depend also on what is happening to core inflation, which excludes food and fuel prices. In September, core inflation, which shows the long-term trend in price increases, was 5.6 per cent, while business people were signalling they expected prices to jump to an annualised rate of 8.8 per cent by May next year. The bank said it also has its eyes on delays for ships transiting the Panama Canal as a drought in Central America impacts water levels in the waterway as well as how the tightening labour market is influencing prices.