Australian economists are in a flap. Inflation is too low and the debate about what to do about it is raging. Yesterday, Bill Evans argued that Australia cut its inflation target not its interest rates:
“I think that’s quite reasonable for that to happen,” said Mr Evans. “They’d not be losing credibility, but they’d be recognising that the world has changed and we’re changing with it.”
…with the Reserve Bank cutting at a time of relatively robust economic growth and a firm labour market, it may be time to rethink the inflation target range. Australia introduced the 2-3 per cent target, following on from New Zealand, when the rest of world had much lower inflation. Since then, global inflation has weakened to unheralded lows, and is even negative in many advanced economies.
