Minister of Finance and the Public Service, Dr. the Hon. Nigel Clarke, has informed that the current inflation target for the Bank of Jamaica will remain at four to six per cent.
Dr. Clarke made the announcement during a statement to the House of Representatives on Tuesday (May 7).
He explained that the process for setting and renewing the target was codified into law via the Bank of Jamaica Amendment Act 2020, which, among other things, formally introduced Jamaica’s inflation targeting regime.
Dr. Clarke stated that in April 2021, after consultation with the Bank of Jamaica, documents were tabled advising of the renewal of the inflation target of four to six per cent, which was effective for three years.
“Following consultation with the Governor of the Bank of Jamaica, who is also Chairman of the Monetary Policy Committee, I confirm and have so tabled documents advising that the inflation target for Jamaica, calculated as the 12-month point-to-point percentage change in the consumer price index as measured by STATIN, will remain at four per cent to six per cent for the next three years,” Dr. Clarke said.
“The midpoint of this range of five per cent will be the operational target for the Monetary Policy Committee. This target remains consistent with Jamaica’s economic structure and stage of development,” he added.
The Minister noted that a lower inflation target than what currently obtains would require higher interest rates for longer, which could be detrimental to growth and to fiscal dynamics.
Furthermore, Dr. Clarke said Jamaica’s recent experience has highlighted that there are constraints to targeting a lower inflation rate at this time.
“In particular, the frequency of economic shocks, labour market rigidities, low productivity, a weak monetary transmission system and regulated price adjustments, constrain the ability of the Bank of Jamaica to deliver a lower inflation rate than what is currently targeted in the near term,” the Minister said.
Dr. Clarke stated that these constraints speak to inherent challenges that as a country “we must tackle if we are to target and enjoy the levels of inflation of our main trading partners”.
“Going forward, I will support all efforts to ameliorate these constraints. On the other hand, setting the target higher than four per cent to the six per cent range would be problematic for most Jamaicans who do not have the independent means to protect themselves against higher targeted inflation,” he noted.
Dr. Clarke explained that it is for these reasons that the inflation target for Jamaica, calculated as the 12-month point-to-point percentage change in the consumer price index as measured by the Statistical Institute of Jamaica (STATIN), will remain at four to six per cent for the next three years.
