What's missed however is that inflation has in the past acted as an important economic safety valve. The current 2% inflation target is effectively an industrial policy that favours the finance industry rather than a guarantee of stability.
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Low inflation *is* stability though? It's true that high inflation can wipe away debts but that also inhibits lending as well as pushing up real borrowing rates for people and companies alike to often unaffordable levels - particularly for those seeking to roll over debt.
aug 5, 2025, 11:43 am • 0 0 • view
I think we'll see this in the US if Trump gets his way. He seems not to appreciate that just because the Fed might have rates of, say, 1% that doesn't mean the market rate for 5-year lending will be 1% plus costs and profit. Lenders have to factor in depreciation and defaults too.
aug 5, 2025, 11:45 am • 0 0 • view
Strikes me that price stability is quite a one dimensional stability. And we've seen instability manifest in other places GFC is the obvious one here. Plus things like ever rising house prices, that's going to boil over at some point (some would say it already has).
aug 5, 2025, 1:52 pm • 0 0 • view
Yes, low overall inflation certainly isn't the only thing a government or central bank should target (and nor is it) but it is a very useful component in the mix. So are prudent lending policies within the financial sector and an efficient housing market (including adequate supply).
aug 5, 2025, 3:50 pm • 0 0 • view