-8-  In 2011, we asked whether the 2 per cent target should be lowered, and in 2016, whether it should be raised. Decisions to alter the target rate of inflation require that we balance two considerations. On one hand, higher inflation is economically costly.
It distorts the price mechanism and is socially unjust because many people, especially those with lower or fixed incomes, cannot adequately hedge their financial situation against higher inflation. On the other hand, higher inflation, if it were credible (which is a big “if”), would give the central bank a higher neutral policy rate.