China Should Seriously Consider a 2% Inflation Target
This old idea has shortcomings, but it’s better than penalizing investors for justifiably bearish views.
Old inflation ideas don't have to be bad.
Photographer: Kevin Frayer/Getty Images
The achingly slow pace of consumer price increases in China has led to amplified calls to juice the economy, and Beijing has taken some modest steps in the right direction. But a dramatic concept recently surfaced: elevating an economic icon of the 1990s.
It’s not the breakneck expansion of that decade when the country’s gross domestic product soared. Instead, an influential adviser to the central bank suggested the adoption of a compulsory 2%-3% inflation target. Introducing and endeavoring to adhere to such a goal was an idea that spread quickly in the final decade of the 20th century. New Zealand was the early mover. Soon came the UK and Australia. When the euro began life a few years later, the European Central Bank was handed a price-busting mission with a 2% target. The Federal Open Market Committee coalesced around that figure, but delayed a formal pronouncement until 2012.