Inflation set to decline between 2025 and 2027 says Bank of Jamaica

 

 

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Caribbean Money Daily -The Bank of Jamaica has expressed some worry about geopolitical tensions and the knock-on effect on supply chains, but otherwise the central bank is bullish about inflation in the medium term.

The bank this week forecast a reduction in inflation over the next two years occurs in a context of lower projected increases for regulated prices and the lagged impact of the Bank’s relatively tight monetary policy posture on inflation expectations, the exchange rate and, consequently, on imported inflation.

The expectation is for a fall in core inflation to an average of 4.3 per cent, compared with 6.2 per cent over the past two years. The full report is contained in the Quarterly Monetary report for September quarter, published in November 2024.

Compared to the BOJs e Bank’s previous forecast, headline inflation for the next eight quarters has been revised downwards on average by 0.4 percentage point.

The downward revision, the central bank says, mainly reflects lower energy/transport-related and processed food price inflation.

Additionally, for the December 2024 to March 2025 quarters, lower projected agricultural price inflation reflects better than previously anticipated recovery in agricultural supplies.

Analysts at the BOJ stated, “The risks to the inflation forecast are skewed to the upside. Uncertainty, related to potential economic policy changes among Jamaica’s main trading partners, could have adverse implications for investment and remittance inflows as well as inflation expectations.”

It is noted that higher inflation could also result from further escalation in geopolitical tensions, which could adversely impact international supply chains.

Analysts stated, “Worse-than-anticipated weather conditions in Jamaica could also influence higher inflation.”

The BOJ served up some good news, noting that anecdotal information suggests that private sector wage increases have stabilised at their pre Covid rate, but admitted also that there are reports of labour market pressures in selected sectors. On the downside, lower-than-projected domestic demand could influence lower inflation, it was also noted.



Oil prices

It was noted meanwhile that average oil prices for FY2024/25 are projected to decline by 2.1 per cent to US$76.18 per barrel, relative to the average for FY2023/24.

For FY2025/26, average oil prices are forecast to increase by 2.7 per cent to US$78.21 per barrel, relative to the previous fiscal year. LNG prices are projected to increase, on average, by 6.2 per cent and 19.2 per cent, respectively, in FY2024/25 and FY2025/26, relative to the previous fiscal years.

The BOJ said that grains prices are projected to decline over the next eight quarters. On average, prices are projected to decline by 22.9 per cent and 10.1 per cent in 2024 and 2025, respectively. The outlook is supported by projected increases in global production.

The risks to the forecast for oil and grains prices are assessed as being to the upside. Upside risks to commodity prices may emanate from extreme weather, and heightened geopolitical tensions.

Information Source: Quarterly Monetary Policy Report of the Bank of Jamaica.



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