Courtesy of Mish.
A post on deflation in Sweden (which its central bank does not want) got me to thinking about inflation targeting once again.
Sweden’s central bank, the Riksbank, has an inflation target of “2 per cent as measured by CPI.” Bernanke has a similar target, as do many central banks.
The first major problem with inflation targeting is that increases in money supply and credit (the true measure of inflation) frequently appear in the form of asset bubbles, not consumer prices.
Even if that were not the case, it’s easy to show why 2% inflation targeting is a bad thing.
Inflation Targeting at 2% a Year
click on any chart for sharper image
Real Disposable Income
Real Disposable Income Per Capita
Real Disposable Income Per Capita Detail…
