“THERE have been three great inventions since the beginning of time: fire, the wheel and central banking,” Will Rogers, an American humorist, once said. Sensible folk do not meddle with fire, yet central banks are considered fair game. The Bank of England is already under attack from industrialists and trade unions. And if, despite evidence of a slowing economy, the Bank's monetary policy committee (MPC) continues to hold interest rates steady—as it did at its meeting on September 10th—the muttering will grow louder.






More importantly, even with an inflation target a central bank must still decide how to respond to external shocks, such as an oil-price rise, and how quickly it should bring inflation back within its target. It can try to drag inflation back on track as fast as possible, regardless of how much it reduces output, or it can accommodate higher inflation in the short run and bring it back within target gradually. So even with an inflation target central banks have considerable flexibility in taking account of short-term fluctuations in output.

If inflation deviates by more than one percentage point from its target, the MPC is required to send an open letter to Mr Brown to explain why it might be appropriate to overshoot the target for a period. That does not mean the Bank will always make the right judgments, but it will not be the target itself that is to blame.



Another central bank with an explicit inflation target is the Reserve Bank of New Zealand. It, too, has been criticised for pursuing low inflation at the expense of growth. Donald Brash, the bank's governor, has responded by widely distributing a couple of small booklets which explain in simple English the case for an inflation target, and why it does not hold back growth. Perhaps the Bank of England could borrow a few copies and hand them out.