Inflation

[ap855]

It seems that the Bank of England tries to keep inflation at 2%. Why not aim at 0%?

[SpamBammer]

cos then they would all be out of a job and have nothing to do, der!!

[dzug]

Coz 0% implies a stagnant economy where nothing ever changes

[Ethel]

Before the great war we were more or less at 0% inflation - the ony time we had inflation was to service wars.

People never moved on. A young man earned exactly the same as his great grandfater 70 years before him. A loaf of bread was always the same cost.

Hard to imagine.

[Ice.Maiden]

Everything's so expensive now, but if we could stay at this rate for the next 70 years, it'd make people quite happy. Future generations'd sure benefit!

[Ethel]

No they wouldn't . Pay wouldn't increase, house values would be stagnant. There would be no interest paid on savings.

It would be impossible to borrow money.

Nobody would invest in anything because there wouldn't be any sort of return.

Unless the rest of the world was the same, we would be in great trouble very quickly - we wouldn't be able to buy from abroad.

[R1Geezer]

ditto what ethel said and to add to that, aiming for 0 means you are flirting with a much more severe problem, negative infaltion, ie Deflation, bad!

[rov1200]

Not a very good idea. Japan entered a cycle of zero inflation and even went into negative inflation but it took a lot out of their economy.

http://www.iht.com/articles/1996/09/10/think.t _0.php

[ap855]

Thanks for these answers. In reply:-

I'm still puzzled. I would have thought that the objective should be to achieve zero inflation combined with growth of the economy. This is not the stagnant economy envisaged by DZUG. Nor is it the economy in which, as ETHELsays, it would be impossible to borrow money- I would borrow �100 from Ethel, paying her say 2% interest and use it as working capital to make a profit of 10%, leaving me a net profit of 8%. As for negative inflation (R1GEEZER and ROV1200), yes in Japan this went side by side with a hard time for the Japanese economy but we don't know why - perhaps there were factors at work in Japan that don't apply elsewhere. I have the impression that there was not much inflation until the United States dropped the gold standard. Maybe we should all go back on the gold standard.

I may of course be wrong to think that the Bank of England like the idea of 2% inflation. Maybe this is just the maximum that they find tolerable. Does anyone know?