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Stick with the inflation target, says Wolf

Friday, 16th May 2008

With inflation being the worry du jour, many have called for the Government to alter the inflation target - perhaps to raise it, or change the index of domestic costs it focuses on.  Today, in the FT, Martin Wolf outlines why he thinks this is the wrong approach.  His entire article is worth reading, but here's the conclusion:

"The lesson of the 1970s was simple: letting inflation rip, to avoid pain in the short run, greatly increased pain in the long run. The UK must not repeat that error. Today, the combination of a devaluation with tight monetary policy gives it the best chance of escaping from its predicament. It enjoys this option because it decided, rightly, not to join the eurozone. But the country must have the will to make that option work. There is no sane alternative."

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