High inflation does not lead to high growth

The Herald reports:

Inflation is the right target for monetary policy, says Reserve Bank governor Graeme Wheeler, and has served the country well over the past 25 years.

But there were a lot of things monetary policy couldn’t do, he said in a speech yesterday. They included improving the economy’s long-term growth rate, alleviating an overvalued exchange rate, lowering long-term interest rates and doing much more than buy time when the housing market gets out of balance.

Inflation was a hidden tax, he said, affecting most severely those with fixed incomes and holders of cash rather than inflation-protected assets.

Which makes the left’s desire to have more inflation, so weird. It harms those on lowest incomes the most.

In the 20 years before the Reserve Bank Act gave the bank its price stability mandate, annual economic growth averaged 2.2 per cent and inflation swung wildly around an average of 11.4 per cent. Since 1990 growth averaged 2.3 per cent and inflation 2.6 per cent.

What some call the good old days.

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