Inflation Remains Above Target at 8.5% for October 2021

  • Spurred primarily by a rise in the index for Food and Alcoholic Beverages, the All-Jamaica Consumer Price Index (CPI) rose to 116.0 in the month of October (+1.0%). October’s outturn meant that inflation was 8.5% in the 12 months to October 2021 relative to the 8.2% reported in September 2021. Consumer prices have risen for 6 straight months and this is the third consecutive month that inflation has fallen above BOJ’s target range. 
  • A 2.5% increase in the heavily weighted index for the “Food and Non-Alcoholic Beverages” division was a major contributor due in part to 6.8% increase in the index for the class ‘Vegetables, tubers, plantains, cooking bananas and pulses’. 
  • An increase in the index for the division ‘Transport’ (0.3%) also contributed to the rise in inflation. However, this was tempered by a decrease in the index for the division ‘Housing, Water, Electricity, Gas and Other Fuels’ (0.5%). 
  • Inflation is projected to average between 5.5% and 6.5% over the next two years, above the previous projection of 4.8% according to the BOJ. The inflation projection is driven primarily by a gradual rise in core inflation, supported by the lagged impact of higher international grains and shipping prices, a recovery in domestic demand and a temporary jump in inflation expectations. 
  • The BOJ will make its next policy decision today, November 16, 2021 and is widely expected to raise its benchmark rate given the rise in consumer prices. This monetary policy tightening would be aimed at containing the rise in consumer prices and inflation expectations. That being said, the BOJ will have to weigh monetary policy tightening against the adverse impact that this could have on the fledging economic recovery. 
  • The BOJ has already increased its benchmark interest rate 50 basis points, which came into effect October 1, 2021. The BOJ’s hawkish stance contrasts with that of central banks in developed markets, such as Canada, the UK and the US, which have been focused on delaying raising rates until the slack in their economies is absorbed. Policy makers in these countries view the rise in inflation as transitory, though they have admitted recently that it is likely to persist longer than they initially expected.

(Source: STATIN and NCBCM Research)