Should Jamaica target higher or lower inflation?  It seems like a no-brainer, right?  But it’s not as simple as it seems.

So Finance Minister Dr Nigel Clarke is expected to set a fresh inflation target for the Bank of Jamaica in a few weeks. 

Jamaica’s government and central bank currently want inflation to be between 4% -6%.  This range is called the inflation target.

Point-to-point inflation in March was 5.6% which is just barely inside the target range. This target was initially set in 2017, and then formalized into law in 2021.

And even then, people asked, why would the government actually WANT inflation to be as high as 6%?

Inflation simply refers to the rise in the cost of living.  Nobody really wants the cost of living to go up, right? Well, the authorities at the time launched a whole inflation targeting campaign to explain why they wanted inflation at a certain level.

Do you remember the jingle?  “Inflation’s not the enemy if we control it!  Stable, predictable.”

They made the case that if inflation was too low, the economy won’t grow.  So they wanted prices to go up just a little each year.  And they figured between 4%-6% was just the right amount.

But by law, that target has to be evaluated every three years, and it’s about that time right now. So should Jamaica target higher or lower inflation?  Or should the target stay the same?

I know most of you will say lower, because cost a living a kill we right now!  Inflation’s been on the high side since Covid.

But on the other hand, maybe the government wants to give the central bank a more realistic target.

However, changing the target would impact the national budget.  It would affect projected costs, revenues, and overall fiscal planning. Public sector wages are also tied to inflation.  So the budget for the whole country would need to be adjusted. 

The decision to change the target involves consultations with the BOJ governor, Richard Byles and other technical staff.

Governor Byles has reportedly already made his recommendation to the Finance Minister, but the details are still a mystery to the public for now. 

Dr Clarke is expected to go to Parliament soon with the final decision.

He told the Observer that some things to consider are: how well the BOJ has been able to achieve the target; Jamaica’s economic growth prospects; the labour market; and other things.

And that’s the bottom line.