Price fighter

What is the perfect rate of inflation? It is the kind of odd question that economists like to ask each other for fun, but which central bankers have to decide for real.

You might think that the answer was, obviously, zero, but nobody has told the central banks. The Bank of England has an inflation target of 2 per cent, the European Central Bank aims to keep inflation below, but close to, 2 per cent, and the Federal Reserve has a “comfort zone” of between 1 and 2 per cent. Japan’s inflation rate is about zero – but when I visited Tokyo in May, one senior official told me: “We envy you your inflation.”...more>>