However, BOJ Governor issues caution about adverse demonstration effect

Durrant Pate/Contributor

The Bank of Jamaica (BOJ) has assessed that the recent public sector and parliamentary pay hike should have a negligible impact on Jamaica’s inflation, which soared last year but has been tempered in the last three months, in particular.

Addressing the Bank’s quarterly news briefing, BOJ Governor, Richard Byles declared, “adjustments to selected regulated prices such as the national minimum wage, recent increases in the cost of communication services, seasonal increases in agricultural prices as well as pending increases in other regulated prices such as transport costs, could temporarily lift inflation back above the Bank’s target range over the next three to four months.”

However, when questioned by Our Today why the recent salary hike to civil servants and parliamentarians didn’t factor in his inflation outlook, Byles conceded that there would be an impact but this would be negligible. Responding to a question from Our Today, Byles remarked, “Salary increases will have an inflationary impact of about 0.5%. That is our estimate. That is not to say that it can’t have an extraordinary demonstration effect that pushes future wage increases beyond what we expect.” 

Inflation impact of only 0.5%

He went further to say, “sitting where we are here writing this monetary policy statement we think that it will be about 0.5%. All wage increases will impact inflation to that extent but we are not sure if there are any demonstration effects and what impact that might have in the future on wages.” 

A question was asked of the Governor about the increase in parliamentarian salaries to which he responded, “when you look at the quantitative impact I read somewhere that it would be J$1.7 billion. Now this would not have a very substantial impact from an inflation point of view.”

Governor Byles reiterated that the BOJ in its inflation assessment examines “all wage increases in the same way whether it be minimum wage, wage increase for civil servants or wage increases for parliamentarians. 

“We see it in the same way. Whilst it might be justified to a certain extent we look at it carefully because it can have impact, particularly if it has a demonstration effect meaning the increase triggers further and even high increases down the value chain,” he added.

He pointed out that at April, the key external drivers of headline inflation such as grains, fuel and shipping prices, continued to decline and inflation expectations tracked downwards. The Central Bank boss emphasized that while inflation has been trending downwards, it is however, projected to trend back toward the target range by the December 2023 quarter.