Inflation Targets: If You Can't Hit The Goal, Raising The Goalpost Won't Help

The ECB is wondering if it can produce more inflation if it has higher targets. The notion is complete silliness.

ECB president Mario Draghi questions the ECB's mantra of keeping inflation 'below, but close to 2%'. Draghi now favors ‘symmetry’ around the target.

The ECB staff is investigating Draghi's Proposed Inflation Targeting Idea as a means to achieve higher inflation.

European Central Bank staff have begun studying a potential revamp of their inflation goal, according to officials familiar with the matter, in a move that could embolden policy makers to pursue monetary stimulus for longer.

The staff are informally analyzing the institution’s policy approach, including the question of whether the current target of consumer-price growth “below, but close to, 2%” is still appropriate for the post-crisis era.

President Mario Draghi favors a “symmetrical” approach, meaning flexibility to be either above or below a specific 2% goal, the officials said, asking not to be identified as the work so far is confidential and preliminary. That would allow the ECB to keep inflation elevated for a while after a period of weakness to ensure price growth is entrenched.

Governing Council members were given a presentation by Massimo Rostagno, the ECB’s director general for monetary policy, on the effectiveness of the current target, according to one of the officials. Rostagno showed that a straightforward 2% objective would make it easier to raise inflation and price expectations, and reduce the need to push interest rates deeper below zero in the future.

Changing the goal itself would probably require a formal review, the officials said. An ECB spokesman declined to comment.

Absurd Discussion on Many levels

  1. Central banks are hell-bent on producing inflation when they do not have any idea how to measure it.
  2. Instead of wondering how to achieve 2%, they ought to wonder if 1% or 0% is a better target or if they should have any target at all.
  3. If you cannot hit the goal, then raising the goal post in and of itself cannot possibly do a damn thing except make the target look even sillier.
  4. Worries over routine price deflation are patently silly.
  5. The idea that inflation expectations matter is silly in and of itself.
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Kees De Vos 1 month ago Member's comment

Ifully fully agree with you