Why a 4% inflation target may be coming

Fuelling the volatility is a profound shift in economic policy, as my special report on the world economy, published today, explains. 

https://www.economist.com/special-report/2022/10/05/policymakers-are-likely-to-jettison-their-2-inflation-targets

https://www.economist.com/special-report/2022-10-08

After the crash of 2007-09 politicians tightened government budgets while central banks unleashed low rates and quantitative easing. Today that combination has gone into reverse. Central banks are raising interest rates sharply to fight inflation even as politicians look spendthrift.

The most likely legacy of today’s turmoil is not persistently higher real rates, but persistently higher inflation. The costs of tighter money are mounting. Stimulus-loving politicians are unlikely to tolerate the painful recessions that would be needed to squeeze all the excess inflation out of the global economy.

Many economists want a higher inflation target as a means to keep nominal interest rates, which eventually rise one-for-one with trend inflation, safely away from zero. 

And though central banks are rhetorically committed to their 2% targets, their mettle will be severely tested as economies and markets slump. 

Henry Curr The Economist 6 October 2022

Many economists argue that raising the target from 2% will result in fewer, and less severe, recessions

https://englundmacro.blogspot.com/2021/09/many-economists-argue-that-raising.html

Riksbankens inflationsmål bör höjas från nuvarande 2 till 3 eller 4 procent för att skapa bättre möjligheter att möta framtida kriser. Det säger professor Lars Calmfors

- Riksbankens inflationsmål bör höjas från nuvarande 2 till 3 eller 4 procent för att skapa bättre möjligheter att möta framtida kriser. Det säger professor Lars Calmfors i en intervju med Dagens Nyheter

DI, 5 september 2011

https://englundmacro.blogspot.com/2011/09/riksbankens-inflationsmal-bor-hojas.html