Are low-level inflation targets still fit for purpose?
Geostrategic shifts make the case for a narrow price target less compelling
Inflation targeting has emerged as the monetary policy tool of choice for many central banks during the past 35 years. The Reserve Bank of New Zealand first selected a 0–2% target (now 1–3%) in 1990. It represented a medium-term range – factoring in a modest rise in prices and dealing with inflation index measurement errors – to which the central bank could steer inflation by adjusting short-term interest rates. The subsequent adoption of similar targets by the Bank of Canada, Bank of England
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