Shifting the Inflation Goalposts
As global growth slows and price levels remain elevated, central banks may be tempted to raise their inflation targets. But Brazil’s recent economic difficulties show that adjusting the definition of price stability to support fiscal spending may well result in higher inflation and slower growth.
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LONDON – As the most aggressive wave of monetary tightening in four decades slows the world’s largest economies, a growing number of analysts are questioning whether central banks should raise their inflation targets beyond the current 2%. After all, is it worth sacrificing growth just to gain an extra inch in the fight against inflation?