Jamaica Inflation Breaks Above Target as Transport Costs Drive June Surge

  • The latest data from the Statistical Institute of Jamaica (STATIN) showed annual point-to-point (P2P) inflation accelerated to 6.7% in June, exceeding the Bank of Jamaica's (BOJ’s) 4.0%-6.0% target range for the first time this year. It reinforced the central bank's warning that inflation would temporarily breach its ceiling amid rising transportation and food costs in the wake of a US-Iran war-driven surge in energy costs.
  • P2P contributions for the divisions: ‘Food and Non-Alcoholic Beverages’ (9.8%), ‘Transport’ (7.3%) and ‘Housing, Water, Electricity, Gas and Other Fuels’ (3.5%) were the primary drivers of the rise in consumer prices for June.
  • Consumer prices rose by 0.8% in June, following a 0.5% increase in May. June's monthly increase was driven primarily by a 4.3% rise in the 'Transport' division, reflecting the implementation of higher Public Passenger Vehicle (PPV) fares for route taxis and hackney carriages. The fare adjustment, which rolled out in two equal 8% fare increases in June and July, had already been identified by BOJ as a key upside risk to inflation. It is expected to continue filtering through transportation costs over the coming months, in addition to the resurgence in energy prices that has begun since the start of renewed hostilities in the Middle East in July.
  • Food prices also continued to trend upward, with the 'Food and Non-Alcoholic Beverages' division rising 0.7%. Higher prices for agricultural produce, including carrots, cabbages, onions and sweet peppers, resulting in a 2.9% increase in the index for 'Vegetables, tubers, plantains, cooking bananas and pulses', put upward pressure on the index.
  • The 'Housing, Water, Electricity, Gas and Other Fuels' division, which increased 0.5% due to higher household rental rates and electricity charges, also added to the inflationary impulses.
  • With headline inflation breaching the target range, the BOJ is likely to opt to maintain the policy rate at 5.50% at its August 19th meeting, especially since expectations are for the breach to be temporary. The BOJ has consistently signalled that inflation is likely to remain above target in the near term as higher international commodity prices continue to feed through to the domestic economy.
  • Against this backdrop, the re-escalation of tensions in the Middle East and threats to shipping through the Strait of Hormuz further reinforce upside risks to inflation, particularly through fuel, electricity and transportation costs, suggesting the central bank is likely to retain a cautious, data-dependent stance.

(Sources: STATIN, BOJ, & NCBCM Research)