Governor of the Bank of Jamaica (BOJ) Richard Byles says that the Government of Jamaica and the central bank are on the same page in controlling inflation, despite an increase in public passenger fares frustrating the BOJ’s inflation targeting efforts.

Addressing the alignment between fiscal and monetary policy, Byles noted that for some time the Government and the bank have been united in inflation-targeting efforts.

He added that the achievement of fiscal surplus means that the Government is collecting more than it is paying out in wages and other expenditures.

“And that is helpful to the central bank in targeting inflation. So, yes, in general, the policy of the Government has been helpful and cooperative in inflation targeting – and for a long time,” he outlined at the BOJ’s quarterly monetary policy press briefing on Tuesday (May 21).

“In March, the BOJ’s Monetary Policy Committee said it needed a “more structured approach” to implementing regulated price increases that “do not reflect current demand conditions [but] could potentially reduce the effectiveness of monetary policy in managing inflation,” he added.

It acknowledged then that headline inflation of 6.1 per cent at February 2024 was higher than the central bank’s target, and this was largely due to the impact of the increase in public passenger vehicle (PPV) fares that came into effect in October 2023, as well as the effect of wage increases throughout the economy.

Notwithstanding, Byles said that given the impact of inflation on consumer spending, taxi drivers and minimum wage earners would need an increase.

“So we have no problem with these things getting increases. The concern we have is when it comes to us unexpectedly and in a lumpy form, that is what makes it difficult for us to manage and the PPV was a classic example of that,” the central bank governor explained.“From that point of view it (inflation) was a big challenge for the bank,” he mused. The GOJ has deferred a second increase of fares to PPV operators, but Byles noted that the BOJ “will have to brace for when that comes into effect.”

When asked to what extent the Government consults with the BOJ before adjusting regulated prices, Byles pointed out that it is “usually” done. 

In fact, he said Finance Minister Dr Nigel Clarke has asked the central bank to run scenarios to ascertain the impact of wage and public good price increases on inflation targeting.

However, in relation to the PPV rate increase, the governor said, adding that the “slip through” created some challenges for the central bank. While the Ministry of Finance and the Public Service has not indicated when the second phase of fare increases will be implemented, Byles is hoping that it will be communicated beforehand.

When asked if the Government’s public sector compensation review will possibly stimulate salary increases in the private sector, and thus stoke inflation, Byles said the BOJ produces from a survey a wage index with which it tracks compensation.

Senior deputy governor Dr Wayne Robinson shared that to the end of last year into early 2024 the index signalled strong increases in the 15 per cent range.

“The good thing is that the latest print is showing that the pace of wage increases is actually slowing…so that is a good signal to us,” he said.

He however noted that the BOJ is cognisant that the public sector compensation package could result in wage adjustment across the economy.

“And that is why we have been flagging that as a concern and as a risk and we continue to watch that,” Robinson pointed out.