I’ve been hearing plenty of calls for a higher inflation target, perhaps four percent. I do understand the case for this, and furthermore it is not obvious that the higher rate of inflation would bring significant social costs.
The thing is this: whether rationally or not, the American public hates higher rates of price inflation. Perhaps they mis-sample or mis-estimate prices, or perhaps the higher prices really do erode their real wages in a way they can’t get back through a new labor market bargain.
So a higher price inflation target would mean that everybody would hate the central bank. It would not shock me if the first thing they did was to dismantle…the higher price inflation target.
Under nominal gdp targeting, the rate of price inflation would not have to significantly rise until worse times were upon us. That is precisely when such upward price pressures would be most useful.