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iNFLATION TARGETS 'the path to folly'

By Brendan Boyle | Jul 09, 2009 | COMMENTS [ 0 ]

EXCESSIVE adherence to rigid inflation targets was one cause of the global economic crisis, renowned economist Joseph Stiglitz said in Johannesburg yesterday.

Speaking to reporters before a public lecture at the University of the Witwatersrand, he said most countries had realised the folly of strict inflation targeting, but not before serious damage was done.

Stiglitz, a professor of economics at Columbia University in the US, won the 2001 Nobel Prize for economics.

He is in South Africa for a meeting of an African task force run by his university's Initiative for Policy Dialogue, and supported by the Department of Trade and Industry.

"I'd be strongly opposed to rigid inflation targeting in all countries. I think the crisis is in part a result of central bankers focusing excessively on inflation," he said in response to a question.

"It has been a really costly mistake (but) most governments have by now moved to a more flexible policy. Most central banks have woken up that they made a mistake and that you need to look at financial stability," he added.

South Africa has pursued an inflation target since 2000, adjusting interest rates to keep price rises, first between 3percent and 5percent and then, in 2002, raising the target ceiling to 6percent.

The policy and target have come under increasing fire from Cosatu and the SA Communist Party since the global economic crisis began to affect South Africa towards the end of last year.

Finance Minister Pravin Gordhan has defended the policy, but has said "discussion" about its implementation could be appropriate.

Stiglitz played down hopes of a strong global recovery this year and said developing countries such as South Africa could not hope to decouple from the global economy and grow more quickly than the norm.


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