The Breach and the Denominator

The Statistical Institute of Jamaica published the August consumer price index on 15 September. Prices rose 0.6 per cent over the month. Measured against August 2025 they rose 7.9 per cent. The Bank of Jamaica's target is 4.0 to 6.0 per cent a year, so that is a breach of nearly two points, and it is the third in a row. Headline inflation was 6.7 per cent in June and 7.5 per cent in July, and when the Bank held its policy rate on 17 August it recorded the July figure as the second consecutive month above the upper limit since September 2024. August makes three. The rate has not moved. The Monetary Policy Committee met on 14 and 17 August and voted unanimously to keep it at 5.50 per cent. A central bank watching its target slip for a third month and leaving the instrument alone looks like a bank that has lost its grip on prices. Read the release it is reacting to and the picture changes. The Bank has looked at what is actually rising and concluded that almost none of it is its to fix.

Three divisions carry the annual figure. Transport is up 14.6 per cent over the year, food and non-alcoholic beverages 10.2 per cent, and housing, water, electricity, gas and other fuels 4.8 per cent. Within August itself the food and non-alcoholic beverages division rose 1.5 per cent, and inside it the food group rose 1.6 per cent on Irish potato, sweet potato, cabbage, tomato and pumpkin. That is a crop story, which makes it a weather story. Transport rose 0.7 per cent on petrol prices and toll rates. The Bank had put the July reading down to the second phase of increases in route taxi and hackney carriage fares and to the pass-through of higher international commodity prices to electricity rates. That pass-through went into reverse in August. The housing, water, electricity, gas and other fuels division fell 0.7 per cent over the month on lower electricity rates, and the headline still rose. Fares and tolls are set by administrative decision. Potato prices are set by rainfall. A policy rate reaches neither. What it does reach is core inflation, which strips the volatile items out. Core was 5.2 per cent in July against 5.0 in June. Core is inside the range. The headline is not.

The demand case is thinner still. Jamaica's economy has been contracting for three quarters. Real value added fell 7.1 per cent in the fourth quarter of 2025 against the same quarter of 2024, with agriculture, forestry and fishing down 17.7 per cent and mining and quarrying down 37.5 per cent. It fell 4.1 per cent in the first quarter of 2026, agriculture down 18.3 per cent again and accommodation and food service down 16.6 per cent. The Planning Institute reported an estimated 2.9 per cent contraction for April to June and projects a further decline of 0.5 to 1.5 per cent for July to September. Hurricane Melissa runs through all of it. The recovery is real and it is sequential. Against the previous quarter, seasonally adjusted, output rose 3.3 per cent in the first quarter of 2026, and each contraction since has been shallower than the one before. An economy smaller than it was a year ago has little spare demand to push prices up. What the hurricane destroyed has become scarce, and scarce things cost more.

The same price rise is at work elsewhere. A debt ratio has a nominal denominator, and prices sit inside it. The Fiscal Policy Paper tabled in February puts the debt-to-GDP ratio at a projected 68.9 per cent at end-FY2025/26, up 6.5 percentage points on end-March 2025, and it is explicit about how that happened. The stock of debt barely moved. Specified public sector debt stood at J$2,197.8 billion at end-December 2025, 0.6 per cent above end-March 2025. Nominal GDP is what moved, growing 1.0 per cent across the hurricane year. Almost the whole rise was the denominator failing to keep up. That works both ways. The same paper takes the ratio to 65.7 per cent by end-FY2026/27 on nominal GDP of J$3,857 billion against J$3,532 billion, a rise of 9.2 per cent in money terms. Inflation near 8 per cent does much of that lifting. The primary surplus that built Jamaica's reputation was 5.4 per cent of GDP in FY2024/25, is estimated at 1.3 for FY2025/26 and is projected at 0.5 for FY2026/27. Since December 2025 the fiscal rules have been suspended, they stay suspended to end-March 2027, and the 60 per cent target now sits at end-FY2029/30. The Caribbean Debt Tracker carries Jamaica at 65.8 per cent for 2026 on the IMF general government measure, a different basis again, and it improves too. Only one of the two forces moving these ratios is discipline.