Friday 10 July, 2020

The importance of gauging the inflation rate - BOJ

The Bank of Jamaica (BOJ) is on campaign to inform the public that more importance should be placed on the inflation rate, rather than foreign exchange fluctuations.

Below is an issued bulletin on the importance of the inflation rate in measuring the country’s economic health.

The economy is changing, so watching the inflation rate is becoming more important than watching the exchange rate.

Many Jamaicans tend to see the value of the Jamaican dollar as a critical indicator of overall economic health, and this is not necessarily the case.

A particular exchange is not necessarily an indicator of economic health, as the exchange rate is merely the price of a commodity.

For reasons of trade advantages and other economic considerations, there are examples of very strong economies with multi-digit exchange rates, such as Japan and South Korea.

Japan is the third largest economy in the world in terms of GDP and a giant compared to Jamaica, yet it has an exchange rate against the US dollar around ¥112 to $1. South Korea is the 11th strongest economy on the planet, but has a currency with exchange rate of over one thousand won to a US dollar.

Inflation is a much better indicator of economic health.

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