Inflation What’s up with that?
In other countries emerging shakily from recession, inflation is either so low as to be non-existent, or even deflationary. But not us, oh, no. For the month of December, we were chugging along despondently at 6.2%, outside of the government’s targeted band of 3-6%, which suggests that our dear old CPI is way too high, and unresponsive to changes in demand. Why, you ask wearily? It’s because state-controlled increases – like electricity, rates, water and education – keep CPI up of nights, no matter how few microwaves and packets of Nik Naks we are buying. Don’t forget, either, that food commodity prices have collapsed internationally, which should bring inflation down, but doesn’t. What about inflation targeting, you ask? Remember those agonising months of upward ticks in inflation and jumps in the interest rate, followed by more of those ticks? Thought so.
Comment: All of which suggests that a less ambitious inflation target of say 3-8% might be in order.