Is low inflation a good thing?

alittleecon

Today it was announced that the CPI measure of inflation had fallen to 1%, a 12 tear low and also well below the Bank of England’s 2% target. Lib Dem dogsbody Danny Alexander welcomed the news, saying “This is a welcome early Christmas present to millions of families across the country.” Thanks Santa! The thinking in Government seems to be the lower the better, because they are desperate to negate Labour’s ‘cost of living crisis’ attack, but is low inflation really a good thing? Helpfully, FT columnist Tim Harford wrote a short piece on this in February, some of which I will reproduce here:

“What wrong with low inflation?

Nothing, so far – but you can have too much of a good thing. Inflation is also low and edging downwards in the US, Japan and the eurozone. Yet in all these places, interest rates are low and central bankers…

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