The problem with government inflation measures

Source: Goldmoney.com

2011-OCT-23

Central banks claim to be concerned about inflation. Even more, some have committed to maintaining price stability in their own statutes, at the highest constitutional level. As inflation depends ultimately on money growth, it is not surprising at all that central banks care about inflation. In fact, persistent inflation will hit on the purchasing power of money, and thus will deteriorate its main functions as universal means of payments, store of value and unit of account. However, do central banks really target price stability? The answer depends, among other questions, on how we measure a blurred and disputed concept such as inflation. Apparently, this exercise is easy and straightforward. This assumption is ill-founded, and it has severe and undesirable consequences on how monetary policy is conducted.

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