It was a temporary aberration.

Supply chain bottlenecks would be eased, and prices would settle back to normalcy with inflation abating.

Six months later, inflation is skyrocketing and there doesn’t seem to be an end in sight. Some say that rampant inflation may very well be with us well into the second quarter of 2022.

While it was said that economies would come roaring back, we all have to contend with the ogre that is rising inflation. Will it turn into hyper-inflation?

We could be on that trajectory.

A key inflation measure surged higher in October, with US consumer prices climbing more than they have in 30 years.

Energy costs alone in America have risen by 30 per cent year-on year.

Earlier this week US President Joe Biden said: “Many people remain unsettled by the economy and we all know why. They see higher prices. Everything from a gallon of gas to a loaf of bread cost more. It’s worse even though wages are going up. We still face challenges.”

In Jamaica, inflation is also gallivanting, and in August rose to six per cent. The Governor of the Bank of Jamaica, Richard Byles, moved quickly to quell further escalation by raising the interest rate.

He was pilloried for this move by the business classes, though he did explain that the Central Bank’s mandate is to manage with inflation in the four to six per cent range and that most Jamaicans are impacted by inflationary turbulence, more so than credit factors.

With the Jamaican dollar at an all-time high of  J$156 to the Greenback, rising energy costs, a high importation bill and turbo-charged global inflation, less resourced Jamaicans are in for a hard time over the coming months. It’s going to cost more to stay alive.

This is what the Bank of Jamaica’s Monetary Policy had too say in September:

“At its meetings on 28 and 29 September 2021, the MPC noted that inflation had breached the upper limit of the Bank’s target range in August and that the risks of inflation continuing to breach the target over the next year have intensified. The recent significant increases in international commodity prices and shipping costs have had a stronger than expected pass through to local prices. These increases have contributed to a further rise in inflation expectations, which were already elevated. Consumers will also be faced with higher prices for agricultural commodities as a result of the recent passage of tropical storms Grace and Ida in August 2021, which may also contribute to a worsening of inflation expectations.

“In order to limit the second-round effects of the above noted shocks, which could then cause inflation to breach the upper limit of the Bank’s target over a protracted period, the MPC agreed to reduce its level of monetary policy accommodation, by increasing the policy rate by 100 bps to 1.50 per cent. This is against a background of an extended period of very accommodative monetary policy with the policy rate at a historic low of 0.5 per cent since August 2019. Accompanying this rate increase, the Committee decided to continue implementing measures to contain Jamaican dollar liquidity expansion. The Committee also reiterated that, while the Bank does not target any specific level of the exchange rate, Bank of Jamaica will continue to ensure that further movements in the exchange rate do not threaten the inflation target.

“Finally, consistent with meeting its inflation target sustainably in the medium term, the MPC agreed to continue increasing the Bank’s policy rate (and by extension raising real interest rates, which are currently significantly negative) and maintaining or intensifying the accompanying measures. This position is subject to inflation and other macroeconomic data evolving as projected.

“The following considerations informed the Committee’s decisions:

1.    The annual point-to-point inflation rate at August 2021 was 6.1 per cent, above the July 2021 outturn of 5.3 per cent and the Bank’s target range. The acceleration in inflation primarily reflected the effects of higher prices for food (both processed and agricultural), meals consumed away from home and selected services such as education and transport. This breach of the inflation target occurred earlier than expected and the MPC will be writing to the Minister of Finance & Public Service to explain the causes of the breach, the measures that have been taken by the Bank to restore inflation to the target range and the short-term outlook for inflation.

2.    “The private sector’s expectation of inflation remains elevated and continues to increase. In the latest survey as at July 2021, respondents indicated that they expect inflation over the ensuing 12 months to be 7.4 per cent, significantly above the Bank’s inflation target and above the expectations reported in the previous three surveys.

3.    “Inflation was projected in August 2021 to average 5½ to 6½ per cent over the next two years, which was higher when compared to the average inflation rate of 5.0 per cent over the past two years. Inflation was projected to breach the upper limit of the Bank’s target range over the next twelve months. Conditional on the gradual tightening of monetary conditions, inflation was projected to remain at 5.0 per cent over the medium term.

“The inflation forecast for the next two years anticipated a gradual rise in core inflation, supported by the lagged impact of higher international commodity and shipping prices and a recovery in domestic demand. The recovery in domestic demand conditions was expected to be driven mainly by external demand. The outlook for inflation also contemplated the effects of one-off adjustments in selected regulated prices as well as further increases in house rental rates. In addition, inflation was projected to be affected by the lagged and second round impact of energy prices. While international commodity and logistics prices were expected to remain elevated in the short-term, they were projected to fall as demand/supply imbalances in the global economy improved.

4.    “The risks to the inflation forecast are skewed to the upside and these risks have intensified. Upside risks (which means that inflation could track above the forecast) include higher than expected inflation expectations stemming from the shock to international commodity and shipping prices, a higher than projected pass through of the increases in these international commodity and shipping prices to domestic prices and the impact of recent storms on the supply of agricultural foods and their prices. Of note, the fall in international grains prices to date have been stronger than expected but the effects of this are not likely to offset the impact on domestic inflation of the other shocks.”

It is now November and everything is going…. Including house prices.

The shocks are real and are growing more prolonged. I think we can no longer consider them temporary and that a return to the good ol’ times is happening any time soon.

Inflation in the US is 6.3 per cent year-over-year when it was said that it would be two per cent. Instead it has come in three times that. 

With inflation this high in the US, one can be sure its impact will be more precipitous in Jamaica which has a high import component, doesn’t produce most of the food it consumes, wages are low and energy costs are high.
Tourism remains the saving grace and with visitor arrivals increasing, this vital industry is a life line.

While Byles and the Bank of Jamaica have been severely rebuked for efforts to stem the ravages of inflations, it is instructive to return to what former US Treasury Secretary Larry Summers had to say about inflation while others, including the present Treasury Secretary, Janet Yellen, were proclaiming it would abate, was of little concern and not uncontrollable. “I think that the policymakers in Washington, unfortunately, have almost every month been behind the curve. They said it was transitory; it doesn’t look so transitory. They said it was due to a few specific factors; doesn’t look to be a few specific factors. They said when September came and people went back to school, that the labour force would grow and it didn’t happen.

“My experience is that you should hope for the best and plan for something much less than the best. I think that means stronger actions by the Fed. It means the administration has to be thinking about inflation.”

What we do know is that, with inflation galloping, companies both in the US and in Jamaica will raise their prices. It’s already happening –  just check your grocery bills.