By all technical accounts, the war on inflation is over. Jamaica is standing on stable monetary ground: inflation is low, reserves are full, and the dollar is holding its ground. But the boardroom mood across the island suggests something else entirely — a quiet panic that refuses to die.
Inflation, officially, is under control. The latest numbers show a modest 3.3% annual increase — well below the Bank of Jamaica’s 4–6% target range. Even electricity prices have dropped. From a textbook point of view, the central bank should be popping champagne. But the real economy doesn’t run on textbooks. It runs on belief. And the belief — especially in private sector circles — is that the storm isn’t over.
A Tale of Two Realities
While macro indicators paint a rosy picture, the private sector is bracing for something much darker. Businesses are projecting inflation to rebound to 6.3% by December, and to average 7% over the next year. That’s nearly double what’s showing up on official dashboards.
Worse, these firms are acting on their fears. They’re planning for price shocks, budgeting for currency slippage, and raising internal cost expectations — particularly for stock replacement and utilities. It’s not just pessimism. It’s economic PTSD, born from years of volatility.
The Policy Tightrope
The Bank of Jamaica, caught between hard data and soft sentiment, is holding its ground. The Monetary Policy Committee (MPC) has frozen the policy rate at 5.75% for the second time — not because inflation demands it, but because expectation management does. The MPC knows the fight has shifted from reality to perception.
In essence, the bank is saying: “We’ve done our job. Now trust us.”
That trust, however, is proving elusive.
The Return of Dollarisation
One metric reveals just how deep the scepticism runs: dollarisation. The share of deposits held in US dollars by Jamaican residents has ticked up, quietly but significantly — now standing at 39%. That’s not a vote of confidence in the local currency. That’s a flight to safety.
The timing isn’t random. New policy jitters out of Washington — including talks of tariffs and remittance taxes — are sparking tremors in emerging markets. Jamaica, highly exposed to US policy shifts, is feeling the chill. Even whispers of a 1% tax on remittance flows (a $3 billion+ pipeline) are enough to push businesses and households toward USD holdings.
Inflation as a Mindset
This isn’t about CPI anymore. It’s about psychology. The MPC’s minutes hint at a growing internal awareness that expectations can trigger the very conditions they fear. If firms budget for higher inflation, they may preemptively raise wages or prices — creating the inflationary spiral they dread.
This is the paradox the BOJ now faces: Stability exists on paper, but belief in that stability remains elusive. And belief, in monetary policy, is everything.
Managing the Optics
Interestingly, the BOJ’s interventions are working — at least on the surface. Currency depreciation in July was just 0.6%, aided by a strategic US$30 million injection into the market. This suggests the Bank still has the firepower and precision to hold the line. But headlines alone won’t reverse sentiment. Not when every CEO still feels the tremors of past shocks.
The MPC’s communications now matter as much as its policy moves. What Jamaica faces is a perception lag — a delayed recognition of improvement. The MPC knows this and is adjusting accordingly: it has begun reviewing domestic spending trends, labour markets, and wage growth — all key transmission points for sentiment to turn into reality.
