The damning truth about the UK’s 2% inflation target: it’s completely made up | Louis-Philippe Rochon
So much pain is inflicted in the name of this figure. But was it ever more than an arbitrary choice?
- Louis-Philippe Rochon is professor of economics at Laurentian University, Canada
Across the world, central banks have been vowing for almost two years to return inflation to the target rate of 2%. In practice, this has meant increasing interest rates - the cost of borrowing - in order to slow down economic activity. Today, the Bank of England decided to leave interest rates in the UK at 5.25%, their highest level since 2008.
There are almost 60 countries that officially have a 2% inflation target, including the US, UK, Japan and the eurozone, but where does this actually come from? It is perhaps the most important policy objective being pursued today; you would think there must be a slew of empirical support that justifies this chosen target. After all, the target matters a great deal. If it were, say 3% or 4%, we would probably no longer be so concerned with rising prices, as many countries' inflation has fallen to those levels.
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