The FT notes this morning that:
Central banks need to consider aiming for a higher inflation target as they boost their room for manoeuvre in the context of a sluggish economic environment, a senior Federal Reserve policymaker has said.
John Williams, the president of the Federal Reserve Bank of San Francisco, said the current 2 per cent inflation target is not well suited to an economy with a depressed natural interest rate – the rate consistent with an economy operating on an even keel.
This suggestion makes a lot of sense, but for more reasons than the one noted.
The reasons for more inflation now, specially if measures were put in place to build new houses to avoid inflation in that sector are numerous.
First, this does mean, as John Williams notes, that monetary policy might have some relevance again.
Second, it might mean that negative interest rates can be avoided.
Third, it means inflation can be used to reduce personal and other debt by the sheer passage of time.
Fourth, modest inflation makes people feel better: business and employees all prefer to see even notional growth in earnings. But, I would caveat that enhanced union and other negotiating rights are needed as a result - including wages councils.
Fifth, pension funds may be easier to manage.
Sixth, pensioners will be happy.
Seventh, inflation redistributes wealth from asset owners (the wealthy) to borrowers: that is almost invariably socially progressive.
Eighth, if house pricing can be managed access to home ownership could be improved.
And I could carry on, but I think that's enough to make point. Please note my caveats, but overall more inflation with modest interest rates would be a good thing for the UK economy. And wise politicians from the left should be saying so - because this is a policy for the 99%.
PS Why isn't Labour saying that? Shouldn't macroeconomic thinking, including its integration with other policy, be on its agenda?