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The CPI inflation target of 2% is academically supposed to be the _long term mean_

If we hypothetically assume 3 years of 10% CPI inflation that's 1,1^3 = 1,33 --> 33% tot

To get to 33% with 2% inflation it would take

1,02^14 = 1.32 --> 14 years

SO, to get inflation "down to 2%" as they say, we would need 11 years of ZERO inflation to have a reversion back to the 2% mean.

How is the framing accepted that you can just move inflation down to 2% temporarily and everything is hunky dory?

Petr 2y ago

Isn't that crazy? Once you do the math you see it is not going back.

As for the target of 2% it was first chosen in New Zealand as a test and it seemed to work then all others just adopted the target. I am not aware of any strong evidence why it should be 2%. It kind of correlates with economic growth but that doesn't make it a good target.

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Discussion

The ₿itcoin Artist 2y ago

Yeah, totally agree, the 2% is arbitrary.

But they are not Even following their own rules

Petr 2y ago

Because they can't 😂😂