Raising the Inflation Target (Evaluation Skills Video)
- A-Level, IB
- AQA, Edexcel, OCR, IB, Eduqas, WJEC
Last updated 17 Apr 2017
Here is a short video building three evaluation arguments on the question: "Evaluate the case for the Bank of England increasing their official inflation target"
If the inflation target is raised from 2% to 4%, then banks may start to increase interest rates on savings to attract deposits
Eval: Whether savers see a rise in real interest rates on their money depends on what happens to actual inflation. Savings rates tend to lag other rates.
A higher inflation target helps to reduce the risks of an economy getting stuck with price deflation which can be costly to investment and jobs.
Eval: Inflation is unpopular with nearly all households especially if they feel the rewards from their hard work are being undermined by rising prices which lowers their real incomes.
Tolerating a higher rate of inflation will help to reduce the real value of debt especially mortgage & government debt. This will help the economy in the long run.
Eval: Lenders will start to expect / anticipate a higher rate of inflation in the future and may decide to increase the interest rates they charge on loans