Bank of Jamaica projects inflation to average 5.9% over next two years

The Bank of Jamaica forecasts that inflation will average 5.9 per cent over the next two years, down from a previous projection of 7.4 per cent, Governor Richard Byles said Tuesday.

Speaking at a press conference on the Quarterly Monetary Policy Report, Byles said inflation may temporarily exceed the upper limit of the target in the June and September quarters of 2026, but is expected to return to the target range by the December quarter.

The Governor attributed the earlier-than-expected moderation to improved domestic indicators and a reduction in anticipated second-round price pressures. “While the baseline forecast does not explicitly include the Government’s recently announced tax package, our simulation suggests that its impact may not materially disrupt the projected return of inflation to the target range,” he noted.

Byles highlighted both downside and upside risks to the forecast. Inflation could be lower if domestic demand recovers more slowly than expected, but higher inflation could result from adverse weather, elevated inflation expectations, or increased spending tied to post-hurricane recovery efforts.

“In particular, the Government’s temporary suspension of the fiscal rule will allow for fiscal deficits over the next three years. To the extent that these deficits support capital projects and other recovery spending, public-sector demand could place pressure on the country’s productive capacity, which may contribute to higher second-round price pressures,” Byles said.

He stressed that these risks underscore the need for a cautious approach to monetary policy as Jamaica navigates its post-hurricane recovery.