Government and economists say, that ideal inflation is about 2%.. why is that? Why is 2% of my savings disappearing every year good? (In ideal case)
In: Economics
2% is a myth.
Started off as positive inflation no more than 2% being a goal for the NZ central bank, no more than 2% because of inherent inaccuracies in consumer price indexes for a small island nation.
Then got copied around.
Deflation is generally seen as bad, mostly for historical reasons, as solving deflation while on the gold standard was very hard. And governments were forced to hike taxes, or get rid of the gold standard, worsening economic issues. In the modern day it’s still bad but to a lesser extent as money can be freely printed to solve it.
Deflation, in absence of any intervention is usually caused by an economic slowdown and inflation a result of economic growth and an expansion of credit markets. Changing inflation rates has some effects on the economy, lowering inflation will generally cause a lowering in growth, increasing inflation will generally increase it, but this relationship is not as solid as the impact of growth on inflation.
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