Inflation Has Fallen to 7.8% for November 2021; Still above BOJ’s Target Range

  • For the month of November, the All-Jamaica Consumer Price Index (CPI) remained relatively unchanged. November’s outturn meant that point-to-point inflation was 7.8% in the 12 months to November 2021, down from the 8.5% reported in October 2021. Despite the reduction in inflation for the 12 months to November, it remains outside the BOJ’s target range of 4% to 6%. 
  • While there were increases in most divisions, the overall movement in the inflation rate was tempered by a 1.8% decline in the index for the heavily weighted ‘Food and Non-Alcoholic Beverages’ division. Lower prices for some agricultural produce such as yam, tomato, and cabbage, due to improvements in local supplies was the primary driver of the fall in the Food and Non-Alcoholic Beverages Division. 
  • That being said, increases were observed in the index for the ‘Housing, Water, Electricity Gas and Other Fuels’ division (+2.8%) due to increases in the electricity, water and sewage rates and the ‘Transport’ division (+0.6%), due mainly to higher petrol prices. 
  • According to the BOJ’s forecasts made on November 16, 2021, inflation is projected to average between 5.5% and 6.5% over the next two years. Inflation will continue to breach the upper limit of the Bank’s target range over the next 10 to 12 months with the rate projected to peak in the range of 8.0 per cent to 9.0 per cent over this period. The October 2021 inflation expectations survey published by the BOJ indicated that point-to-point inflation for December 2021 is estimated to be about 7.8 per cent. This represents an upward trend in the results from 7.1% and 6.7% for September and July, respectively. 
  • As a means to guide inflation back within the target range over the next two years, the Bank of Jamaica (BOJ) increased its policy interest rate, by 50 basis points to 2.00% per annum, effective 17 November 2021. This is in line with Fitch’s projection of a 2.00% policy rate by the end of this year. The Bank of Jamaica is expected to hike its benchmark interest rate by 75 basis points (bps) to 2.75% by the end-2022 according to Fitch Solutions. 
  • Given, its original forecast that the local economy was showing strong signs of recovery local market and the rise in inflation expectations, participants widely expect the BOJ to increase its policy rate when it meets on December 20. However, the emergence of the Omicron variant of the COVID-19 risks presents a downside risk to the local economic recovery. There has been a spike in hotel booking cancellations globally which will threaten the rate of recovery in global tourism, limiting the contribution of the local tourism sector to local economic recovery.

 (Sources: STATIN, BOJ & NCBCM Research)