Inflation Spikes in August: Hurricane Beryl the Main Culprit

• Jamaica’s 12-month point-to-point (P2P) inflation for August 2024 was 6.5%, snapping 5 consecutive months of P2P inflation staying within the Bank of Jamaica’s (BOJ’s) 4% to 6% target range. August’s P2P inflation outcome was 1.4 percentage points (pp) higher than the P2P rate for July 2024 and is the highest since January 2024 at 7.4%.
• This P2P increase was primarily driven by monthly rises in the price of 'Food and Non-Alcoholic Beverages' and 'Housing, Water, Electricity, Gas, and Other Fuels'. The August P2P inflation jolt was anticipated by the BOJ in the aftermath of Hurricane Beryl given its impact on the price of agricultural produce. But it also negatively affected energy prices.
• In August 2024, the ‘Food and Non-Alcoholic Beverages’ division saw its highest monthly increase since the CPI revision in April 2020. Monthly food prices rose by 4.3%, driven by a 15.5% increase in ‘Vegetables, tubers, plantains, cooking bananas, and pulses,’ due to supply shortages following the damage wrought by Hurricane Beryl.
• The ‘Housing, Water, Electricity, Gas and Other Fuels’ division, which rose by 3.7%, had the second largest impact on the monthly inflation rate. This was largely influenced by a 10.6% increase in the group ‘Electricity, Gas and Other Fuels’ due to increased electricity rates.
• There was a temporary unavailability of Liquified Natural Gas (LNG) just before Hurricane Beryl. New Fortress Energy, the LNG supplier, took its gas facility offline as a precaution to protect it from potential hurricane damage. Consequently, local power provider JPS had to switch to a more costly alternative automotive diesel oil (ADO) which led to a 32% increase in the fuel rate for the July to August electricity billing cycle.
• Despite the diminishing impact of the October 2023 taxi fare hike on P2P expected next month, the BOJ still predicts that “while there will be an uptick in headline inflation over the next three to five months resulting from the effects of Hurricane Beryl, this uptick will be temporary”. Following this period, inflation is projected to be largely within the target range for the subsequent two years.
• In its communication following its latest meeting, the BOJ’s Monetary Policy Committee (MPC) emphasised that current economic conditions are favourable for sustaining low, stable, and predictable inflation going forward which could pave the way for further rate cuts. This viewpoint remains unchanged despite preliminary estimates suggesting a significant slowdown in Q2 GDP and the expected contraction in Q3, attributed to the ongoing effects of Hurricane Beryl.

(Source: STATIN, BOJ & NCBCM Research)