PSOJ Urges Caution in Respect of Transitory Inflation

The Private Sector Organisation of Jamaica (PSOJ) takes note of the Bank of Jamaica’s (BOJ) policy interest rate adjustment from 0.5% to 1.50% per annum, effective October 1, 2021, due to a 6.1% inflation in August which breached the upper limit of the BOJ target range of 4.0%– 6.0%, as well as an uptick in short term inflation expectations. The PSOJ also notes that the Jamaican economy is expected to expand in the range of 7.0% to 10.0% for FY2021/22 and between 2.0% and 4.0% FY2022/23.

The PSOJ is of the view that there is basis for concern that the now tighter monetary policy stance – in the context of adverse macroeconomic conditions arising from the COVID 19 pandemic, the government’s program to maintain a fiscal surplus, and uncertainty among economic actors about short term price changes due to supply chain issues – presents a risk to Jamaica’s medium-term economic growth prospects.

The International Monetary Fund in a preview of the World Economic Outlook to be released on October 12, 2021 notes “recent price pressures for the most part reflect unusual pandemic-related developments and transitory supply-demand mismatches. Inflation is expected to return to its pre-pandemic ranges in most countries in 2022 once these disturbances work their way through prices, though uncertainty remains high. Elevated inflation is also expected in some emerging market and developing economies, related in part to high food prices. Central banks should generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying price dynamics. Clear communication from central banks on the outlook for monetary policy will be key to shaping inflation expectations and safeguarding against premature tightening of financial conditions. There is, however, a risk that transitory pressures could become more persistent and central banks may need to take preemptive action”.

The PSOJ endorses the view of the IMF and encourages the BOJ to utilize its unquestioned credibility to lead a communication effort that more directly emphasizes for all economic actors the transitory nature of the inflation we are experiencing, while expressly clarifying the specific economic circumstances that would give rise to further changes in the policy rate and continuing to assure the country that it stands ready to utilize effective policy tools to head off embedded inflation should that need arise. The PSOJ stands ready to cooperate with the BOJ and other stakeholders in this regard.