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The Forum > Article Comments > Hewson manifesto was ahead of its time > Comments

Hewson manifesto was ahead of its time : Comments

By Stephen Kirchner, published 18/9/2009

The 2.5 per cent inflation rate considered a policy triumph in Australia would still be regarded as too high in some other countries.

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There is no good reason to have inflation. Economic monetary policy should be zero inflation.

The only plausible reason I have heard for inflation is that it allows adjustments in relative prices because some sections of the economy (like wages) are difficult to adjust downwards. By having some inflation we allow relative prices to adjust "painlessly".

I suspect this reason is specious and even if true it does not justify the harm done by allowing inflation. Inflation along with gyrations of the cost of money in the money markets means that the primary purpose of money - namely the measurement of value - is seriously weakened. Imagine how difficult it would be to plan our physical infrastructure if the meaning of a meter changed by random amounts. No wonder economics is in such bad shape if its primary measurement tool is unstable.

The number one task of the Reserve Bank is to stabilise the currency around zero inflation and anything less is unacceptable.
Posted by Fickle Pickle, Tuesday, 22 September 2009 6:40:54 AM
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