{"id":75123,"date":"2024-04-18T08:13:04","date_gmt":"2024-04-18T07:13:04","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=75123"},"modified":"2024-04-18T08:13:04","modified_gmt":"2024-04-18T07:13:04","slug":"a-3-inflation-target-would-work-just-as-well-as-a-2-one","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2024\/04\/18\/a-3-inflation-target-would-work-just-as-well-as-a-2-one\/","title":{"rendered":"A 3% inflation target would work just as well as a 2% one"},"content":{"rendered":"<p>I just posted this video on YouTube and elsewhere.<\/p>\n<p>As I note, a 3% inflation target would work just as well as a 2% one - so why are we going to pay a massive price for getting to 2% inflation?<\/p>\n<p><iframe loading=\"lazy\" title=\"3% is inflation just fine\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/ykvEJyQJACk?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/p>\n<p>The transcript is as follows:<\/p>\n<hr \/>\n<p><em>The UK's inflation target is 2%, but 3 per cent would do just as well. Let me explain.<\/em><\/p>\n<p><em>The Office for National Statistics has just come up with new data that says that the inflation rate in March 2024 was 3.2%.<\/em><\/p>\n<p><em>Markets have reacted really adversely. They expected it to be lower than that. And they're now saying, as a result, that interest rates must remain higher than we would otherwise want as a consequence of this month's aberration, that inflation fell, but not by as much as they wanted.<\/em><\/p>\n<p><em>The fact is that. they are fixated with there being an inflation rate of 2%. But nobody on earth, and I literally mean that - nobody on earth - knows why the inflation rate that we target was chosen to be 2%. It was created one day, decades ago on the back of an envelope as a convenient target, which it was thought central bankers should aim for, although nobody has ever found out why it was picked.<\/em><\/p>\n<p><em>My point is a very simple one. If they\u2019d picked 3%, first of all, we'd be there.<\/em><br \/>\n<em>And secondly, we'd be just as well off as we are.<\/em><\/p>\n<p><em>Actually, heading for 2 percent is going to make us much worse off than we are now.<\/em><\/p>\n<p><em>The reason why is that to get to a 2 per cent inflation target, the Bank of England will keep interest rates high for a long time. So we will have a risk of a recession. We will have a risk of higher unemployment. We will have a risk of lower investment. We will have a risk of less government spending. All of those things are going to make us all worse off. Worse off, all for the sake of meeting a 2 per cent inflation target that nobody can explain why we have.<\/em><\/p>\n<p><em>My suggestion is very simple. Two per cent is not a good inflation target. In fact, it might be a very bad inflation target, because it means that some things will actually be deflating. For example, goods - that's literally physical products - are right now. So instead, fixing at a 3 per cent rate would create a more balanced, more stable and stronger economy.<\/em><\/p>\n<p><em>So why are we continuing with 2%? I don't know. Nobody does. Nobody can explain it. But we're all suffering for it. And that makes no sense at all.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>I just posted this video on YouTube and elsewhere. As I note, a 3% inflation target would work just as well as a 2% one<br \/><a class=\"moretag\" href=\"https:\/\/www.taxresearch.org.uk\/Blog\/2024\/04\/18\/a-3-inflation-target-would-work-just-as-well-as-a-2-one\/\"><em> Read the full article&#8230;<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[35,106],"tags":[],"class_list":["post-75123","post","type-post","status-publish","format-standard","hentry","category-economics","category-politics"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/75123","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=75123"}],"version-history":[{"count":1,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/75123\/revisions"}],"predecessor-version":[{"id":75124,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/75123\/revisions\/75124"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=75123"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=75123"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=75123"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}