Presenting....the ultimate lowdown on inflation, via a Western movie-themed yarn featuring Croc. O. Doyle in his debut acting role as the new Sheriff in town...enjoy!
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#BOJSpeaks #FinanceTwitterJA
2. Artistically, the story borrows from and pays parody homage to the spaghetti western film genre, which partially inspired Jamaica’s own global cult classic film, The Harder They Come, and spaghetti western-inspired video games like the Red Dead series.
3. Inflation targeting is rather complex, and not to be compared with the simplicity of shooting at a target, as it’s not really about precisely hitting a static target every single time. Economics in general, and monetary policy in particular, is hardly ever that simple.
4. Managing inflation is process, not a single act, and is a lot more about strategically and proactively nudging inflation in the right direction, and putting measures in place to keep it there. It’s more cowboy than gunslinger, more like herding cattle than target shooting.
5. Central banks can only fully control core inflation, the underlying level of inflation tied to money supply, but the initial impact of other factors affecting inflation will be totally beyond a central bank’s control. Factors like global commodity prices and the weather.
6. Some may then wonder; if the job is so imprecise, and if so many components of inflation are beyond anyone’s control, then why do central banks bother taking on a task that to many onlookers might seem so daunting, if not technically impossible?
7. The answer, firstly, is that central banks can exert significant influence on the direction and consistency of inflation by shaping public expectations, so temporary shocks aside, economies can indeed keep inflation under control most of the time.
8. Secondly, the inflation extremes of too high or too low are so devastating, and the middle ground of just low enough and stable so vital and valuable, that inflation is the most important and useful thing for a central bank to focus on, as steadfastly as a scarecrow.
9. Thirdly, central bankers have a particular set of skills and a limited set of tools. With that reality in mind, modern central banks are of the view that like everyone else, we should stick to what we can do best. In our case, that happens to be managing inflation.
10. Despite the difficulties, therefore, targeting inflation is worth it, and the critical job falls to central banks.
11. Economies, generally, are in search of growth, and the best way for central banks to support growth is to keep inflation low and stable by talking the talk and walking the walk - conducting predictable and credible monetary policy free of external interference.
12. Inflation targeting has proven itself over time as is the best way to do this, and that’s exactly why Croc O Doyle is in town.
13. There are usually three major levels of inflation lurking around, and Croc. O Doyle is the just the kind of watchful and dedicated curly wolf who can consistently handle monitoring the proximity of all three.
14. Even though they’re all related, however, only two of the three are dangerously harmful, and so we must always be clear about which two are really the bad guys.
15. High inflation is a hard case and a monster, a brazen king cobra that destroys households, businesses, and entire economies. This varmint has been with us before, and we never ever want it to come back.
16. Make no mistake, high inflation is priority number one, the one we want to always vamoose and stay far away.
17. When inflation is too high, chaos reigns. Economic conditions spiral out of control along with prices, like a stampede. Planning is impossible, investment is too risky, and poverty rises as money engages in a vain chase after stampeding prices.
18. In contrast to high inflation, the hard-fisted deadbeat of too-low inflation is a sly python, which sneaks up on you. What feels like the comfortable embrace of affordable prices at first will eventually tighten to stifle the economy to death if it takes hold for too long
19. When inflation is too low, lower prices will be a curse in disguise, as inflation that’s too low means falling sales, no profits, and no growth, so eventually business activity will be stifled, jobs lost, and the economy becomes a barren wasteland.
20. This is not a problem that we’re familiar with, and we want to keep it that way. It has, however, ravaged other countries, so it’s good for us to remember that it does indeed exist, so we can keep avoiding it.
21. It’s a bit rough around the edges, but this is the kind of inflation – just low enough, stable and predictable – that you want to hold on to. However, any inflation at all means prices are a bit higher, so it’s a trade-off that’s better for the seller than the buyer.
22. This is because businesses- small, medium and large, are what run economies, and they need a little inflation as an incentive to grow, from which the entire economy, including buyers, will benefit. A little inflation, therefore, is what greases the wheels of the economy.
23. But if your income is low, even low inflation hurts. More so if you lose your job. The solution is that better wages to match prices should come from increased business activity/productivity providing more jobs, as a private sector making more profits drives the economy.
24. Business investment is a risk, like making a bet, and bets are best taken when the odds are in your favour. The stability of an environment where inflation is consistently just low enough tips – and keeps - the odds in favour of business, and consequently more employment.
25. An environment where inflation remains low but high enough to encourage business is therefore, in the end, good for everybody.
26. To encourage inflation to remain in this sweet spot, Croc O. Doyle will always be tracking the three types of inflation, to ensure that the wrong ones are kept at bay while the right one is allowed to function.
27. Wherever they go, hither and yon, from Badlands to high plains, Croc O. Doyle will always be there, just like a shadow.
28. Thank you for your kind attention. 🙏🏽🤠 🐊
