There are far more important real economic problems which face us.
Few people enter politics to keep inflation low.
Nor should we expect them to do so. Price stability should be part of our economic constitution, common to all parties, which provides a degree of macroeconomic stability to enable governments to devote both the time and energy to debate the great issues of the day. In this lecture, Mervyn King reviews the intellectual and policy framework which allowed inflation to reach unprecedented levels in the post-war period, analyses the costs of inflation, and argues that a successful monetary policy regime must have at its heart a credible commitment to price stability. The flaw in the argument is the implicit assumption that saving rates out of nominal incomes would not change with inflation. Yet in the 1970s that is exactly what happened.