NZ inflation targeting led the world 25 years ago

Neil Irwin in the NY Times writes:

Sometimes, decisions that shape the world’s economic future are made with great pomp and gain widespread attention. Other times, they are made through a quick, unanimous vote by members of the New Zealand Parliament who were eager to get home for Christmas.

That is what happened 25 years ago this Sunday, when New Zealand became the first country to set a formal target for how much prices should rise each year — zero to 2 percent in its initial action. The practice was so successful in making the high of the 1970s and ’80s a thing of the past that all of the world’s most advanced nations have emulated it in one form or another. A 2 percent inflation target is now the norm across much of the world, having become virtually an economic religion.

The article has some interesting history on how we made that decision to have the Reserve Bank focus on inflation only. It is a policy that is now followed by pretty much every sane country.

Sadly in NZ the Greens and NZ First rail against it (Greens wanted to print money just a year ago) and Labour has signed up for watering it down. Low inflation doesn’t happen by chance. Who wants to go back to the bad old days of high inflation?

A $100 basket of goods in 2008 only costs $112 today – six years later. But if you looks at the period 1978 to 1984, a $100 basket of goods would have gone up 105% to $205 in just six years.

One of the best way to help low income families is to keep inflation down.

Hat Tip: Eric Crampton

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