<p>In an <a href="https://www.thetimes.co.uk/article/were-paying-the-price-for-not-cutting-harder-vw6dksgnfwh" rel="nofollow noreferrer">article in the Times</a>, <a href="https://en.wikipedia.org/wiki/Jon_Moulton" rel="nofollow noreferrer">Jon Moulton</a> stated:</p>

<blockquote>
  <p>"The Bank [of England] has had this [2%] inflation target for more than a
  decade yet it lacks any theoretical basis."</p>
</blockquote>

<p><strong>EDIT:</strong> Just in case you are interested, I have a theory about optimal inflation. If you wish money to be neutral - i.e. be a <a href="https://en.wikipedia.org/wiki/Veil_of_money" rel="nofollow noreferrer">Veil over Barter</a> then you would like money to behave as closely as possible to ordinary "stuff" that gets bought and sold. One property that the bulk of goods have is that they decay over time, i.e. they rot, rust, become obsolete etc etc. If you consider the average decay rate of "stuff" to be X% then inflation should be such that money loses its value at a rate of X% too. I'd say that the decay rate of "stuff" is generally greater than 2%, my feeling is that it is more like 5% or so.</p>

CC BY-SA 4.0
2019-06-05T23:20:03.223Z
2019-06-06T13:23:53.693Z
2019-06-06T13:23:53.693Z
Mick
<p>Learning from different sources I got the impression that the <a href="https://www.wikiwand.com/en/European_Central_Bank" rel="nofollow noreferrer">European Central Bank</a> targets at a inflation rate of 2% (not sure along which time scale actually).</p>

<p>Can it be explained by general principles why a (long-term) inflation rate of 2% seems optimal?</p>

<p>Or does it depend on the current economic situation, and in some scenarios an inflation rate of 0%, 1%, or even 5% or deflation would be optimal (in the short or mid run)? But in the long run always 2%?</p>

CC BY-SA 4.0
2019-06-05T13:41:37.753Z
Partial answers: [Inflation and economic growth](https://economics.stackexchange.com/questions/3317/inflation-and-economic-growth?rq=1)
Hans-Peter Stricker
CC BY-SA 4.0
2019-06-05T15:51:57.313Z
https://www.npr.org/2018/12/06/674036708/what-is-inflation-targeting-and-why-does-it-matter
Art
CC BY-SA 4.0
2019-06-05T16:49:00.427Z
@Art: Hurray, this article is exactly about the 2% target. Thanks a lot!
Hans-Peter Stricker
CC BY-SA 4.0
2021-11-04T16:17:08.227Z
I suggest you to read this article ( https://www.ilsole24ore.com/art/bce-target-dell-inflazione-2percento-va-rivisto-ACWUSDz?refresh_ce=1). It is very useful to understand both the "dovish" and the "hawkish" position about this topic. Hope you'll enjoy it!
Giord
<macroeconomics><inflation>
Why is an inflation rate of 2% optimal?
Hans-Peter Stricker
# Why is an inflation rate of 2% optimal?

(Asked by: username_0 on 2019-06-05)

Learning from different sources I got the impression that the [European Central Bank](https://www.wikiwand.com/en/European_Central_Bank) targets at a inflation rate of 2% (not sure along which time scale actually).

Can it be explained by general principles why a (long-term) inflation rate of 2% seems optimal?

Or does it depend on the current economic situation, and in some scenarios an inflation rate of 0%, 1%, or even 5% or deflation would be optimal (in the short or mid run)? But in the long run always 2%?

**Tags:** macroeconomics, inflation
> **Comments:**
> **username_0**: Partial answers: [Inflation and economic growth](https://economics.stackexchange.com/questions/3317/inflation-and-economic-growth?rq=1)  
> **username_1**: https://www.npr.org/2018/12/06/674036708/what-is-inflation-targeting-and-why-does-it-matter  
> **username_0**: @Art: Hurray, this article is exactly about the 2% target. Thanks a lot!  
> **username_2**: I suggest you to read this article ( https://www.ilsole24ore.com/art/bce-target-dell-inflazione-2percento-va-rivisto-ACWUSDz?refresh_ce=1). It is very useful to understand both the "dovish" and the "hawkish" position about this topic. Hope you'll enjoy it!  

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## 1 answers

### Answer by username_3 on 2019-06-05. Score: 4

In an [article in the Times](https://www.thetimes.co.uk/article/were-paying-the-price-for-not-cutting-harder-vw6dksgnfwh), [Jon Moulton](https://en.wikipedia.org/wiki/Jon_Moulton) stated:

> "The Bank [of England] has had this [2%] inflation target for more than a
> decade yet it lacks any theoretical basis."

**EDIT:** Just in case you are interested, I have a theory about optimal inflation. If you wish money to be neutral - i.e. be a [Veil over Barter](https://en.wikipedia.org/wiki/Veil_of_money) then you would like money to behave as closely as possible to ordinary "stuff" that gets bought and sold. One property that the bulk of goods have is that they decay over time, i.e. they rot, rust, become obsolete etc etc. If you consider the average decay rate of "stuff" to be X% then inflation should be such that money loses its value at a rate of X% too. I'd say that the decay rate of "stuff" is generally greater than 2%, my feeling is that it is more like 5% or so.


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