When is inflation a good thing?

For the UK, inflation stands at double what Bank of England calls a "comfort zone" of 2%, yet interest rates have remained at an all time low. What role does monetary policy play in anchoring it?

We'll be holding this debate together with the London Economics Debating Society ( https://www.meetup.com/neweconomy/ ), which I'm also involved with.

It's actually a continuation of a previous debate on the subject, but we felt we had a lot to learn and barely scratched the surface.

Don't worry if you don't know much about it, there will be people there who can help.

It's probably going be slightly more interactive than previous events, with some games and exercises, to help us get to the root of the issue.

This one was originally proposed by Yusuf Yassin, whose original text is here:

The Bank targets a CPI inflation rate of 2% under its current monetary policy remit in order to maintain price stability. However, the crisis has highlighted shortcomings to this approach. Namely, it fails to adequately address the threat of deflation and the risk of hitting the zero bound of interest rates. (interest rates can't go negative, or at least in nominal terms) Last year, Oliver Blanchard, the IMF's chief economist, wrote an article proposing central banks increase their inflation target to 4% to provide more scope for interest rate movements during a crisis. The Reserve Bank of India's governor Duvvuri Subbarao, who has never warmed to inflation targeting, has said the world should do without it. Although Ben Bernanke, the Fed chairman, wrote a book praising the inflation targeting framework, the Fed has yet to adopt an explicit inflation target. Is this the end of the inflation targeting era? Should central banks raising their inflation target or dump the framework all together? What should a new framework look like. How will central banks' enhanced financial stability remit change central bank policy on inflation? I propose we discuss this and any other topics related to inflation at our next meeting. I also think it would be fun to conduct an inflation survey between us and later on have an inflation themed pub quiz. I've copied a link to Blanchard's paper below should you wish to read it. http://www.imf.org/external/pubs/ft/spn/201... (http://www.imf.org/external/pubs/ft/spn/2010/spn1003.pdf) A short summary of inflation targeting from Fredric Mishkin: http://www0.gsb.columbia.edu/faculty/fmishk... (http://www0.gsb.columbia.edu/faculty/fmishkin/PDFpapers/01ENCYC.pdf) If you really want to get to grips with the subject, Bernanke's book on inflation targeting can be found on google books for free: http://books.google.co.uk/books?hl=en&l... (http://books.google.co.uk/books?hl=en&lr=&id=MryLRLgkjGQC&oi=fnd&pg=PA1&dq=inflation+targeting+bernanke&ots=FR1yZd918F&sig=WcQI4o7jLr215l2G3InU1HY4HYs#v=onepage&q&f=false)