Dave Wrixon

Target for Inflation: Getting It Right

The issue has got very clouded.

What needs to happen is that Fiscal and Monetary Policy need to be coordinated to prevent either overheating or excessive cooling of the economy.

Much of the problem is that the central banks took their eye off the ball. Fixated with consumer price indexes which were grossly distorted by cheap imports from emerging economies, they just lost the plot.

The most pragmatic approach would be to cobble together an empirical index of indices that targets the wider picture of economic momentum. To be totally effective this should focus on leading, not lagging indices, so policy adjustments are made in real time.

Many of the straw poll data that comes well in advance of government statistics is going to be the most useful. For example loan approvals are much more useful indicators of house price moment than the official government stats, which by the time they are issued are of more interest to archaeologists and historians than economists.