No surprise

Economist Dr Damien King and Opposition Spokesman on Finance Julian Robinson say they are unsurprised by the Bank of Jamaica’s (BOJ) assessment that inflation will remain higher than targeted until next year.

King told The Gleaner on Thursday that this was an evaluation he made independently weeks ago as he noted that the country is virtually at full employment, with only 4.2 per cent of the labour force searching for jobs, impacting the BOJ’s ability to to reduce interest rates.

“It is not entirely surprising that the Bank of Jamaica’s projection is for inflation to remain above the target range because there is cost pressure coming from the tight labour market. And as long as that continues to exist then it is going to be putting upward pressure on inflation and forcing the central bank to keep interest rates at their current level,” he said.

Inflation over 12 months ending January 2024 is currently 7.4 per cent, which is above the target range of 4.0 to 6.0 per cent.

At its quarterly press briefing on Tuesday, BOJ Governor Richard Byles said the bank’s Monetary Policy Committee met on the 16th and 19th of February and was advised that inflation would remain above the bank’s target range until June 2025.

“Largely because of the impact of the temporary price shocks,” he said.

The BOJ cited inflationary factors as the two-part rise in public passenger vehicle fares effective October 2023 and April 2024 as well as the effect of public sector and private sector wage increases throughout the economy.

The inflation outturn also reflected high agricultural food inflation.

Partly offsetting the impact of these factors was a reduction in Jamaica Urban Transit Company (JUTC) fares.

However, Byles noted that the BOJ had overestimated the effect of the fare reduction, which had an offsetting impact of only 0.2 per cent.

On Friday, the BOJ apologised for the miscalculation.

This admission, according to Robinson, is confirmation of the People’s National Party’s stance from the beginning that this was “bad policy”.

“At the very outset, we indicated to the Government that this policy was not likely to succeed mainly because the JUTC only serves a small percentage of consumers within the Kingston Metropolitan Area. [In] the parishes outside of the Corporate Area, persons have to rely on taxis and Coaster buses to get around, and the JUTC is only operating at 30 per cent of its capacity, where it’s only turning out 180 buses a day from a target of 500, so the impact would always be minimal in terms of reducing inflation, particularly when taxi fares have gone up and are projected to go up even further on April 1st,” he said in a release.

In November last year, Finance Minister Dr Nigel Clarke outlined a phased temporary reduction in the regular fares of the JUTC from $100 to $70 in January 2024, and for children, from $30 to $25. The fares for pensioners were also reduced from $40 to $30.

In April, regular fares will be further decreased to $50, children’s fares to $20, and pensioners’ to $25.

Clarke said the reduction, which is expected to cost the Government $1 billion, was done to cushion the impact of a recent fare hike for public passenger vehicles on the overall inflation rate.

But speaking Friday afternoon, Dr. Clarke said the government stands by its decision.

On Friday, he defended the move, saying it was necessary to give JUTC passengers a reprieve.

King said the fare reduction “is not an anti-inflation measure in the broad sense in which inflation is relevant”.

“It was a measure that was aimed to be an assistance to people who need to take public transportation, who need to take buses. To say it didn’t work because the cost of transportation is too low on expenditure to impact overall inflation doesn’t mean it didn’t work in terms of providing relief to some needy persons,” he told The Gleaner.

Robinson, in the meantime, has labelled the Government’s decision as “raw politics”, which he said only served to worsen the financial misery of the JUTC without delivering a benefit to overburdened taxpayers or commuters.

“It was not comforting to say, ‘I told you so’, as this policy error will cost taxpayers and have negative consequences for the 2024-25 fiscal Budget,” Robinson stated, adding that it is the people of Jamaica who would pay for a “political expedition” that was doomed to fail.

sashana.small@gleanerjm.com