We target annual point-to point inflation — BOJ

We target annual point-to point inflation — BOJ

Central bank clarifies that inflation target was actually achieved and not missed as claimed

Friday, January 22, 2021

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The Bank of Jamaica (BOJ) is setting the record straight regarding its inflation target, arguing that it was achieved contrary to claims in the media of being missed.

In a news release on Wednesday, January 20, the BOJ pointed to a bulletin published by the Statistical Institute of Jamaica (STATIN) on Friday, January 15 indicating that inflation for calendar year 2020 was 6.4 per cent and that the point-to-point inflation rate as at December 2020 was 5.2 per cent.

The calendar year measure of inflation reports the movement in the Consumer Price Index (CPI) as at December 2020 relative to the CPI at January 2020. On the other hand, the point-to-point measure of inflation reports the movement in the CPI as at December 2020, relative to the CPI at December 2019.

The BOJ noted that “it is not normal for these figures for the calendar year inflation versus the point-to-point measure as at December 2020 to be significantly different. However, in this case the difference between the two numbers reflected the timing of shocks that affected the CPI during 2020.”

In addition, the BOJ contended that these differences have resulted in some confusion as to whether it was successful in meeting its inflation target of 4.0 per cent to 6.0 per cent at December 2020. In fact, the BOJ stated that some elements of the media have already incorrectly reported official inflation at December to be 6.4 per cent.

BOJ INFLATION TARGET BASED ON POINT-TO-POINT INFLATION

As such, the BOJ is seeking to clarify and remind the public that the inflation measure by which its performance should be judged is the annual point-to-point as at December and not the calendar year or any other measure. According to the BOJ, “this measure is stated in the soon-to-be gazetted law amending the Bank of Jamaica Act, which was passed by the both Houses of Parliament in December 2020.”

Section 34FF(4) of the law 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”. Since 2017, BOJ has been charged by the minister of finance and the public service with a target range for the 12-month point-to-point inflation rate of four to six per cent.

In its new release the BOJ stated that, “despite continued challenges of weather-related agricultural price fluctuations, the BOJ has been fairly successful in maintaining inflation within the four to six per cent corridor. During the past 36 months leading up to December 2020, inflation has surpassed the upper limit of the target on just two occasions, in December 2019 and June 2020.”

This represents a 94 per cent success rate in keeping inflation below 6.0 per cent. The central bank explained that the reason for inflation going above target on those two occasions was related to temporary increases in agricultural prices due to either droughts or floods.

The BOJ drew reference to the fact that “there have been 13 occasions over the past 36 months when inflation fell below the 4.0 lower limit of the inflation target. Again, these events were largely associated with volatility in agricultural supplies and prices as well as declines in international oil prices which influenced reductions in electricity and transport-related costs.”

The BOJ reiterated its commitment to its primary objective of keeping inflation low, stable and predictable within its inflation target.


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