BOJ warns inflation could breach target as Middle East conflict lifts fuel costs

The Bank of Jamaica has warned that domestic inflation is likely to climb above its 4% to 6% target band in the June and September 2026 quarters, as higher global oil prices, post-hurricane rebuilding and second-round price effects add pressure to the economy.

In a report to Parliament’s Standing Finance Committee on June 10, the central bank said annual point-to-point inflation moved to 4.3% in April 2026, up from 2.1% in September 2025. Core inflation was 4.1%, compared with 3.9% at the end of September, suggesting underlying price pressures remained contained.

The bank linked the recent increase mainly to petrol costs and agricultural food prices. It said inflation risks are weighted to the upside, especially if conflict in the Middle East lasts longer than expected, keeps commodity prices elevated, or damages oil and gas infrastructure. Weather shocks, including El Niño conditions, could also push agricultural prices higher.

The economy weakened sharply after Hurricane Melissa. Real GDP fell by 7.1% in the December 2025 quarter, after growing by 5.1% in the September quarter. The largest declines were recorded in mining and quarrying, accommodation and food services, electricity and water services, agriculture, and manufacturing. For the March 2026 quarter, the bank estimated a smaller contraction of 4% to 6%.

Despite the shock, the foreign exchange market was described as relatively steady. As at May 26, 2026, the Jamaican dollar had appreciated by 1.5% year over year to $157.90 to US$1, compared with a 2.3% depreciation over the prior 12 months. Gross international reserves stood at about US$6.5 billion, or 138.5% of the assessed adequate level.

The bank expects the current account to weaken in the near term because of higher fuel imports, infrastructure rebuilding needs and the hit to tourism from Hurricane Melissa. It projected the 2025/26 current account balance between a 0.5% deficit and a 0.5% surplus of GDP, compared with a 3% surplus previously.

During questioning, the governor said imported inflation is being addressed mainly through exchange-rate stability, while the policy rate is being held to contain second-round effects. He also said banking-sector concentration remains a structural problem for monetary policy transmission.

In what he described as his final formal report to the committee, the governor reflected on his tenure from August 2019, citing the pandemic, supply-chain inflation, two major hurricanes and wars in Ukraine and the Middle East as major shocks faced by the central bank.