Inflation Falls, But Remains Elevated at 10.9% for 12 Months to May 2022

  • For the month of May, the All-Jamaica Consumer Price Index (CPI) increased by 0.3%. May’s outturn meant that the point-to-point inflation was 10.9% for the 12 months to May 2022, down from the 11.8% reported in April 2022. 
  • For May, the increase in consumer prices was largely driven by the 7.7% increase in the index for the division ‘Restaurant and Accommodation Services’. Higher prices for items within the class ‘Restaurants, cafes and the like’ accounted for the increase. 
  • Also contributing to the upward movement in the CPI is an increase of 0.4% in the index for the heavily weighted division ‘Food and Non-Alcoholic Beverages’. Within this division, the class ‘Cereals and cereal products’ had the largest increase (2.4%) due to increases in the price of flour, bread, and rice, as global shortages around inputs such as wheat, drove up the prices of these imported goods. 
  • However, the increase in the ‘Food and Non-Alcoholic Beverages’ division was tempered by a 2.9% decline in the index for the class ‘Vegetables, tubers, plantains, cooking bananas and pulses’. This decline was due to lower prices for agricultural produce such as vegetables, as a result of an improvement in the local supplies. 
  • Importantly, the overall rate of inflation was moderated by a 3.0%  decline in the index for the ‘Housing, Water, Electricity Gas and Other Fuels’ division, due largely to a decline of 9.0% in the index for the group ‘Electricity, Gas, and Other Fuels’. 
  • Although the point-to-point inflation has declined by 0.9 percentage points, it remained outside the BOJ’s target range of 4% to 6%, for the 10th consecutive month. This breach is expected to continue as the BOJ  projects successive breaches of the target over the next two years. Although the rate was expected to peak within the range of 12.0% and 15.0% by June 2022, this may occur later than expected as global challenges continue to develop. Inflation will likely remain elevated as drought and the Russian Ukraine war raises food security challenges. This is expected to drive continued transmission of higher international commodity and shipping prices to domestic processed foods, food-related services, and energy costs. 
  • On June 29th the BOJ will have its monetary policy meeting and it is speculated that it will increase its policy rate once more. This increase will likely carry the policy rate to 5.5%, from the current rate of 5.0%. This decision will be driven by the expectation for future breaches in the inflation range and the still elevated inflation expectations for 12 months ahead, which rose to 12.1% in the March’s Survey from 9.1% in the prior survey. The recent increase in the Fed funds rate to the target range of 1.5% and 1.75% from 0.75% and 1.0% will also likely play a role in the BOJ’s policy rate decision.

(Sources: STATIN & NCBCM Research)