Missing you already: inflation targeting
Tuesday, 17 June 2008
WHEN does a target become an own goal? The vast majority of countries that have inflation targets are way above them. Of the large economies that use a target, only Canada is within its chosen range. Turkey has been the first to cave in -- in the second week of this month, it nearly doubled its target rate. The costs of such a change, though, may well outweigh the benefits.
Central bankers blame the fact they have missed their targets on oil and food prices that are out of their control. They are right to emphasise the greater relevance of core inflation. But being so sanguine has its dangers. For a start, many emerging economies face additional demand-led inflationary pressures. Second, oil and food prices may rise further. Finally, sustained failure to come close to an inflation target, whatever the reason, undermines the target's raison d'
Central bankers blame the fact they have missed their targets on oil and food prices that are out of their control. They are right to emphasise the greater relevance of core inflation. But being so sanguine has its dangers. For a start, many emerging economies face additional demand-led inflationary pressures. Second, oil and food prices may rise further. Finally, sustained failure to come close to an inflation target, whatever the reason, undermines the target's raison d'