FT News Briefing How did 2% become the magic inflation target?
Jan 3, 2023
The UK is bracing for a severe recession, facing the worst economic downturn in the G7. Meanwhile, the Netherlands grapples with growth limits due to nitrogen emissions and labor shortages. The discussion shifts to the origins of the 2% inflation target, first introduced by New Zealand in 1989, and its significance for central banks. Experts contemplate the potential shift to a 3% target, pondering how this change could affect economic stability and policy flexibility for the future.
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UK Recession Outlook
- The UK's recession is predicted to be the worst and longest among G7 countries, according to economists surveyed by the FT.
- Factors include persistent inflation from the Ukraine war and self-inflicted issues like Brexit and weak investment.
Netherlands Growth Limits
- The Netherlands faces growth limits due to labor shortages, limited physical space, and environmental concerns like nitrogen emissions.
- Potential solutions, like increased immigration or repurposing farmland, are unpopular.
Dutch Economic Bottlenecks
- Many Dutch restaurants close at lunch due to worker shortages; some trains don't run for the same reason.
- The Netherlands' dense population and productive agriculture make solutions challenging.