The core problem is that, that “medium-term” somehow turns into “infinite-term.”

There is no need to put yourself in the line of fire. God forbid all my beloved ones and all the good people that I am not acquainted with from becoming the target. I am trying to come up with an epigram like “It’s better to have a target than to become the target.” But I know it is not full of meaning and it can easily be read into something else. There is no doubt that it is better to have a target. Yet, if you have only short-term targets, you can still be criticized for being short-sighted. I want to ask who isn’t, but anyways… If you have long-term targets only, on the other hand, the famous saying of Lord Maynard Keynes, may he rest in peace, comes to mind: “in the long run, we are all dead.” As the sequent epitaph tells, he has left for good a long time ago. It is questionable whether the time between when he said this and when he died qualifies as long-term; but this is obviously out of the purpose of this commentary. So, I recommend you not to have short-term or long-term targets alone. If you are wondering whether you can combine both, why not? Why cannot we assume a middle way, right? If there is no other way, we sure can follow the middle way, which, in our case, is the “medium-term target.”

During 2007 and 2008, inflation stood around 4 percent. I am citing from the Monetary Policy Committee (MPC) decision dated October 16, 2007: “The Committee assesses that, under the current policy stance envisaging a measured and cautious rate cut cycle, the risks on attaining the inflation target in the medium term are balanced.” And this one is from the MPC decision of two months later: “The Committee, judging the recent rise in inflation as temporary…assessed that, under a measured and cautious rate cut cycle, the risks against attaining the inflation target in the medium run are balanced.” This one is dated February 14, 2008: “In this context, inflation is expected to decelerate in the medium term despite risks from food and energy prices.” Three months later, the MPC decision maintained that inflation would decrease to some level by the end of 2009 (that is, in the medium-term). Please let me stress it: starting in October 2007, the MPC first said that the targets would be fulfilled; later in 2007 it stated that targets will be fulfilled in the medium-run despite the temporary upswing; and finally in mid-2008, it was claimed that the targets will definitely be met in 2009. Meanwhile, the inflation targets for 2007 and 2008 get lost in the shuffle. At this point, please recall that year-end inflation rates in 2007 and 2008 were 8.4 percent and 10.1 percent, respectively.

The year-end inflation targets were 5.5 percent for 2011 and 5 percent for 2012. On January 20, 2011, the MPC lowered interest rates by 0.25 points. I am quoting from the related MPC decision: “Inflation is expected to decline significantly in January, remain below the end-year target of 5.5 percent during the first quarter, and reach the year-end target after displaying some fluctuations starting with the second quarter.” On August 23, 2011, the MPC stated: “The Committee has noted that inflation may temporarily hover slightly above the levels envisaged in the July Inflation Report. However … it is expected that the increase in inflation would be temporary. Accordingly, the Committee has indicated that inflation outlook for the end of 2012 is consistent with the 5 percent target.” And here is the MPC decision dated December 22, 2011: “…the Committee expects inflation to fall gradually throughout 2012, converging to 5 percent target during the final months of the year.” The last citation of the day is from the MPC decision dated May 29, 2012: “The Committee therefore continues to forecast the year-end inflation to be at 6.5 percent stated in the April Inflation Report.” Please note that by the end of 2012, inflation rate stood at 10.4 percent. The other day, the Central Bank stated that the latest price raises could push up inflation by up to 1.2 points (maximum). The latest forecast for the year-end inflation in 2012 was 6.2 percent; and with this revision the forecast was raised to 7.4 percent (maximum). In a nutshell, it was first claimed that the 2011 target would be met; then during 2011, the focus was shifted to the 2012 target. And finally the day before, we learned that the forecasts were revised upwards. Let’s wait and see if the MPC decision to come in November will claim that the upwards trend in inflation will be temporary and that the targets will be met by the end of 2013 (that is, in the medium-term). The core problem is that, that “medium-term” somehow turns into “infinite-term.”

This commentary was published in Radikal daily on 06.10.2012