What is Inflation?

Inflation is the rate at which the general price level of consumer goods and services in the economy changes over time. When inflation occurs, more money is needed to purchase the same quantity of goods and services.

Inflation can be examined from several perspectives, so we should note that the official inflation measure by which BOJ’s monetary policy performance should be judged, is the annual point-to-point measure, not calendar year inflation, monthly inflation, or any other measure.

Annual point-to-point, of course, means that at any point in the current year (usually at the end of a month, for the sake of orderly comparison), what we measure is the rate of inflation at that point compared to the same point in the previous year.

While each perspective provides useful information, and for that reason we examine them all, the measure used by experts and the measure we find best gives us a clean, tidy platform for sound analysis, is the annual point-to-point measure. This measure evens out the monthly seasonal factors and one-off shocks, and unlike the static calendar measure, is an ongoing method of measurement that can be used every month, with a full year as an adequate timeline for reference each time.

This measure is also what is dictated by law, as the amended Bank of Jamaica Act, Section 34FF (4), now specifies that “the target measure applicable for inflation shall be the annual point to point change in the Consumer Price Index as measured by the Statistical Institute of Jamaica.”