The Bank of Jamaica (BOJ) on Monday red-flagged the country’s output of skilled workers as a looming crisis that may trigger faster increases in the price of goods and services.

Governor of the BOJ, Brian Wynter, who was speaking at the bank’s quarterly press briefing, noted that while the bank is encouraged by the employment results in the Statistical Institute of Jamaica October release, it also presents some issues for further policy debate as the country could exceed capacity limits in terms of skilled labour over the next two years.

Jamaica added 29,200 net new jobs over the year to July 2017. Unemployment rate declined to 11.3 per cent, down 1.6 percentage points from a year earlier.

“This represents the lowest unemployment rate since July 2009 and suggests that employment is growing faster than the labour force,” Wynter said. “While these numbers are heartening, they also suggest that Jamaica is beginning to approach its capacity limits in terms of skilled labour. It is therefore critical for the country to increase the pool of skilled workers,” he warned.

He said the country cannot only look to fill this gap from the unemployed segment of the labour force, but must also look to improving the quality of jobs.

“We are not saying that we are there yet, but we are beginning to approach that time. With 11.3 per cent unemployment there is still some room to grow. We have people who need to be employed; we can also go further up the value chain so I think there is quite a lot that we have to do still before we run into the obstacle, however, because it takes time to develop skills and you need to be investing ahead of that time. Indeed, government policy is to do just that through various skills trade,” he reasoned.

The BOJ governor said the finance and the public service minister’s approval for a continuous medium-term inflation target for the bank of four per cent to six per cent puts the BOJ in a position to influence activities over the next two years, instead of the customary annual fiscal year inflation target.

The establishment of a medium-term target allows the public to hold the bank to account for outcomes from implementing a forward-looking monetary policy strategy, given the known lags in policy decisions. Such decisions are intended to influence the aggregate demand, interest rates, and amounts of money and credit in order to affect overall economic performance.

In reaffirming that the Jamaican dollar remains fairly valued, Wynter also noted that the bank is now preparing to announce the introduction of buying operations under the Bank’s Foreign Exchange Intervention and Trading Tool (B-FXITT).

He said the new reality of two-way exchange rate movements will result in the market becoming more liquid, transparent and conducive to innovation, thus, buyers and sellers will now be required to plan more carefully as there is no longer a safe one-way bet on the direction the exchange rate will take.

According to Wynter, the two-way volatility and increased hedging activity by financial institutions to satisfy the needs of buyers and sellers of foreign exchange, will further reduce how the exchange rate impact local prices. It should also allow Jamaica to move with greater confidence towards the desired goal of full-fledged inflation targeting — a framework that best controls the supply of money to support long-term growth of the economy in maintaining price stability.

Ultimately, the bank hopes that the adequate supply of foreign exchange and a significant reduced exchange rate impact on inflation will weaken the ‘misplaced focus’ of the public on the exchange rate as a key measure of overall economic performance and the primary indicator of future inflation.

The Government’s plan to table legislation to modernise the BOJ by October 2018, will, in looking at the governance arrangement of the bank, also support the move for fully fledged inflation targeting.

The BOJ has already been operating with relatively low levels of inflation. The 12-month rate as at October was 4.7 per cent and the bank is projecting that inflation will remain broadly at this level for the next four to eight quarters.