Should we change inflation target back to 0 to 2%?

Brian Fallow writes:

Should the Reserve Bank’s inflation target be lowered, ask the Bank of New Zealand’s economists.

The target band of 1 to 3 per cent, “with a focus on keeping future average inflation near the 2 per cent target midpoint”, is not, after all, Holy Writ. It was not chiselled into the back of the tablets Moses brought down from Mt Sinai.

The target band has been changed twice already, from its initial 0-2 per cent when Don Brash had the task of dealing to rampant inflation and high inflation expectations, to 0-3 per cent in 1996 and then to 1-3 per cent in 2002, with the explicit focus on the mid-point added when Graeme Wheeler took office in 2012.

I much prefer 0 to 2% than 1% to 3%. It says don’t end up with deflation but have inflation on average at just 1%, which is the best way to protect people on low and fixed incomes.

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