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Richard Cookson

Inflation Targeting Is a Very Stupid Policy

In trying to increase by a fairly random amount an index of prices that they largely can’t control, central banks couldn’t have done much more harm.

There is such a thing as good deflation.

There is such a thing as good deflation.

Photo: Bloomberg

Much ink has been spilled in recent weeks over the U.S. Federal Reserve’s announcement that it will now, in effect, target inflation over the whole cycle. The message from the rest of the developed world’s central banks is similar: Most say that if necessary they’ll do more to get inflation back on target.

This week Christine Lagarde, president of the European Central bank, laid the groundwork for following the Fed. The ECB will now also allow inflation to overshoot on the upside. Presumably such comments are meant to reassure the handful of people still worried that central banks might move a little hastily once the effects of the pandemic have dissipated and growth and inflation start to pick up.