KEY POINTS:
Implicit in the clamour for a change in the monetary policy framework is the idea that inflation is yesterday's problem and the Reserve Bank is full of inflation hawks who repeatedly kill off economic growth before it can get going.
In fact we are now in the longest period of uninterrupted growth since the 1950s, Governor Alan Bollard said yesterday.
But inflation has averaged just under 3 per cent, the top of his target band, over the past three years (2.94 per cent to be precise) as he has used all of the flexibility in the give-growth-a-go changes to the policy targets agreement in 2002.
The result is that he will have a huge problem keeping inflation below 3 per cent over the next couple of years.
The forecasts the bank produced yesterday have inflation hitting 3 per cent by the end of the year and staying there until late 2009. And even that requires short-term interest rates to stay at their current Indonesia-like levels and the exchange rate to stay at current levels too, overvalued by any measure.
It also assumes, fingers crossed, that productivity growth will rebound from its present abysmally low rate.
But if the exchange rate, which has spent most of the past three years well above its trend rate, falls below that rate, inflation will jump outside the target band.
This is no time for politicians to get cavalier about inflation and force the rest of us to relearn the hard way that it creates losers (among savers, for example) as well as winners, and distorts allocation of the economy's limited resources.
It is striking that in the submissions to the select committee inquiry into the monetary policy framework it has been the representatives of the tradeables sector hit by the high dollar, like Federated Farmers, who have been steadfast in support of the current regime.
