I’ve never much understood the use of interest rates to control inflation, then economics isn’t my strong suit, a look at my bank account reveals my financial prowess. However, Joseph E. Stiglitz, Nobel Prize winner and professor of economics at Columbia University comes to my rescue with his article The Failure of Inflation Targeting. Stiglitz describes, “inflation targeting” simply – if price growth exceeds a target level then raise interest rates, regardless of the source of inflation. Stiglitz writes, “One hopes that most countries will have the good sense not to implement inflation targeting; my sympathies go to the unfortunate citizens of those that do”. As he points out inflation has nothing to do with economic mismanagement and everything to do with soaring international food and fuel prices.

Stiglitz ends his article.

Both developing and developed countries need to abandon inflation targeting. The struggle to meet rising food and energy prices is hard enough. The weaker economy and higher unemployment that inflation targeting brings won’t have much impact on inflation; it will only make the task of surviving in these conditions more difficult.