Inflation keeps falling but businesses continue to bet on rising prices

Jamaican businesses are bracing for a potential uptick in prices, despite falling annual inflation, which was estimated at 1.2 per cent in August, one of the lowest levels in recent years.

“Respondents indicated that they expected the largest increase in production costs over the next twelve months to emanate from stock replacement, then utilities followed by wages and salaries in that order. Fuel and Transport are anticipated to have the lowest increase over the next 12 months,” said the Bank of Jamaica in its latest Inflation Expectations Survey report.

The conducted is conducted on behalf of the central bank by the Statistical Institute of Jamaica, which is also responsible for estimating price movements in the economy.

The survey conducted among 333 business leaders showed that respondents expect point-to-point inflation to reach 6.3 per cent by December 2025 and 7.0 per cent by July 2026. This marks a sharp divergence from the current subdued inflation rate and signals growing concern about near-term price pressures.

Post-pandemic, inflation peaked at 11.8 per cent in April 2022 and then waned thereafter. The central bank’s target range for headline inflation is 4.0 per cent to 6.0 per cent, whereas the rate is now 1.2 per cent, having falling from 3.3 per cent as at July. The slide in August was at the steepest pace so far this year at more than two percentage points.

However, businesses are predicting that prices will spike again. The disconnect between actual inflation and expectations suggests that producers are pre-emptively factoring in rising input costs into future price movements.

The actual trajectory on prices has resulted in the BOJ cutting interest rates several times, but global uncertainty surrounding trade policy in the United States and war in Europe and the Middle East has seen it maintaining the rate at 5.75 per cent since May. It’s those same factors that are driving uncertainty in business as supply chains continue to face disruptions.

President of the Jamaica Manufacturers and Exporters Association, Kathryn Silvera, while acknowledging the new low for inflation, said businesses are seeing threats of tariff increase, shipping rate increases and a higher minimum wage coming down the pike over the next 12 months.

“Businesses are seeing slowing sales, higher prices from suppliers, and rising shipping costs,” said Silvera in a comment to the Financial Gleaner.

“The BOJ needs to continue to look to lowering the interest rate and using more than moral suasion with financial institutions to see lending rates coming down,” she said.

The central bank’s next rate decision is scheduled for September 29.

The majority of respondents in the latest inflation survey – 63 per cent – believe the Bank of Jamaica’s policy rate will remain unchanged over the next three months, but a growing minority anticipates a downward shift. Among financial sector respondents, 13.3 per cent expect the rate to be marginally lower, compared to 10.5 per cent among overall respondents.

“In the July 2025 survey, the majority of respondents expected that the Bank’s policy rate would remain the same over the next three months. However, this proportion increased relative to the previous survey,” stated the report.

In the July 2025 survey, the Present Business Conditions Index improved to 109.9 from 94.7 in the previous survey, while the Future Business Conditions Index improved to 122.8 from 110.3.

“The Present Business Conditions Index mainly reflected an increase in the percentage of respondents who said that conditions are better,” the report noted.

steven.jackson@gleanerjm.com