It is increasingly hard not to fulminate at the latter day lunacy of blind CPI targeting. It seems hard to imagine that, 25 years ago, the brave little RBNZ was breaking new ground by adopting the goal of keeping price rises to  0-2% p.a. in order both to provide an anchor for its own broader policy aims and, believe it or not, as a way for it and the government of the day to wean the wider public sector off the levels of increasingly obstructive interventionism which had long been its practice to undertake.

As the idea caught on that too many societal woes were being caused by free spending politicians and belligerent trades unions bullying a captive central bank into monetizing the effects of their poor housekeeping, inflation targeting by a newly independent Bank seemed the key to forcing governments to temper their ambitions and so to live more within their means. Never again were the traumas of the 70s and 80s to be visited on the people.

Now, however, we have all become victims of our earlier success. From being a handy standard around which to rally the liberalizing troops for an assault upon their wider objectives, CPI targeting has become an end in itself, if not THE end; the alpha and omega of policy. Especially malign is that it is wilfully blind to the broader consequences of a surge in money and credit. Worse, it is unabashedly asymmetrical in its application, with upward deviations from the target being quietly fudged and downward ones triggering ever more wild-eyed schemes of reflation. Should prices ever threaten to fall there is no limit to the size of hammer to be wielded to prevent this.

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