The scourge of inflation is set to be with us for some time and is expected to go as high as 15 per cent next month.

Speaking at a press briefing on Tuesday (May 24), the Governor of the Bank of Jamaica (BOJ) Richard Byles declared: “Looking ahead, inflation is expected  to peak at between 12 to 15 per cent by June and to fall within the target range of four to six per cent in June of next year, consistent with a projection of a decline in grain and energy prices and consistent with the Bank’s tighter monetary position.”

Many countries across the world are experiencing elevated inflation as governments seek remedies to put the brakes and starve off hyperinflation akin to what prevailed in the ’70s.

Byles had a dour forecast for the immediate future as the war in Ukraine rages on with no clear end in sight.

“The near-term risk to the inflation forecast is assessed to be skewed to the upside which means the actual inflation could be higher than the forecast. The factors that could cause higher inflation include, a worsening in supply chain disruptions and even higher commodity prices.

“The rebound in the economy and a demand for labour may also result in upward movement in prices. On the downward side, weaker than expected global growth could negatively impact domestic demand,” said the BOJ governor.

SEVENTH RATE INCREASE

The BOJ has increased the policy rate by 50 basis points to five per cent effective 20th of May, 2022. This is the seventh rate increase since last year as the Central Bank moves to keep Jamaican dollar liquidity tight.

There are those who hold the view that although interest rates have gone up seven times since last year, it has had very little impact on inflation and only serves to raise the cost of borrowing, thus impairing businesses.

Byles again explained his rationale for increasing rates, stressing: “This has been critical in preventing inflation rising even further than it has. The bank expects these measures will continue to cause interest rates on deposits and loans to rise further making savings in Jamaican dollars more attractive relative to foreign currency assets and borrowing in Jamaican dollars more expensive.

“In turn, these measures will help reduce the demand for foreign currency leading to continued stability in the exchange rate and will reduce demand in the economy generally. This will limit the ability of businesses to pass on price increases to consumers.”

NINTH MONTH ABOVE BOJ TARGET RANGE

Inflation for the 12-month period leading up to April 2022 was 11.8 per cent representing the ninth consecutive month it has been above the BOJ’s target range of four to six per cent.

The BOJ assessed that the direct and second round impact of the shock of international commodity prices accounted for approximately 75 per cent of domestic inflation in April 2022.