How Inflation Routinely Kills People

The first way is by making many people poor enough that their life expectancy falls because of degraded living conditions. Besides poor people have a lot less access to the kind of medical options that richer people have. For example because he had a Gulfstream V Steve Jobs was able to seek a liver over a much bigger distance -- wherever his plane could take him in 6 hours -- than someone without a jet.

Inflation is also a key driver of inequality. Especially that we now know that the inflation of the poor is about 3% higher than the headline number. Inequality will bring people to the streets -- like in the Arab Spring and elsewhere -- and clashes may cause loss of lives.

Of course if inflation is very high things can get very ugly. And that too on a horrendous scale. Like in 1930s Germany where hyperinflation helped put a little guy with a moustache in power. And the world eventually went to war: between 50 and 85 million people died in WWII.

No wonder then that Central Banks have been setting inflation targets for more than 25 years now -- roughly the period of time Lutchmeenaraidoo was not Finance Minister. With the blessings of their governments. As inflation is a major reason why politicians lose power. In fact we owe it to Governor Basant Roi for one of the best descriptions of inflation so far -- he likened it to radioactivity. Which makes it all the more interesting to check his inflation record. And compare it to Manou Bheenick's.

How Employers Can Pay The Smallest Compensation

By asking the Bank of Mauritius to target a level of inflation consistent with price stability -- that would be between 1-3%. They wouldn't be asking anything extraordinary because that's what already written in the law governing the business of the Central Bank. In fact, law-makers around the world have drafted similar provisions not because they like their fellow countrywomen too much but because they've noticed how higher inflation has a persistently naughty habit of throwing politicians out of office. Which would partly explain why we had 3 different Finance Ministers in the last 16 months.

Policy Blunders Responsible For Robust Poverty

That's what you take away when you compare our recent inflation performance with that of Singapore. See, our inflation increased sharply when the university buddies took over and started messing up Mauritius and stayed high for 3 years before shrinking to a reasonable 2.5% in 2009 -- the year the Great Recession ended. In contrast inflation in Singapore stayed low up to 2007, spiked at 6.6% the following year and collapsed to 0.6% in 2009.

Put differently inflation in Singapore, save 2008, never exceeded 3% in the last 6 years while that of chota Bharat was always higher than that -- in half of those years it was about 3 times higher -- except in 2009.

It's also funny that union bosses -- who are now complaining about increases in the cost of living -- did not request that the authorities set an inflation target when inflation hit a historical low in 2009 as per article 5.2a of the Bank of Mauritius Act. The next best time to ask for it is now.

DSK Explains Brazilian Resilience

As a combination of three factors in a press communique released 2 days ago:

1. Fiscal responsibility
2. Inflation targeting
3. Flexible exchange rate

Would Ali Mansoor kindly explain to us how we've been doing on these since he was given the job of Financial Secretary by his university buddy 5 years ago?

Price Stability is Always a Priority

Unlike what you heard Berenger say on Saturday. See it's such a crucially important policy objective that even a badly battered UK has kept its target inflation rate of 2%. That's the UK you gonna tell me, here in Mauritius the laws of physics or of economics don't apply. What do you make then of the European Central Bank not giving up on its inflation target of less than 2% either?

BOM Publishes 4th Inflation Report

It has to get at least two reports out every year on price stability according to section 33(2)(b) of the Bank of Mauritius Act 2004. It makes a good read and will probably generate some food for thought or some posts if you suffer from blogging addiction like me.

The thing that's missing from it though is an inflation target which has been around for more than 20 years elsewhere. And if you think 3.9% is low enough, think again.

Finally, you may wish to take a look at the British version of the inflation report.

Procrastination Can Be Costly

On July 3, 2005 l'Alliance Sociale wins the elections but Ramgoolam doesn't appoint Bheenick immediately as Governor of the Central Bank. There are probably two reasons for that. The first one is that he doesn't want to compensate Basant Roi for ending his contract prematurely. The other is that Sithanen doesn't want somebody with an independent mind heading the Bank of Mauritius.

Things drag on. Too much. Bheenick is finally appointed in February 2007 -- seventeen months later -- and Sithanen tries to blackmail the PM by dangling a letter of resignation. That doesn't work but the damage is already done. Indeed the amount of inflation -- some call it radioactivity -- created between July 2005 and February 2007 is about 12.5%. That's more than half the high cumulative inflation of 23.9% generated by Federation 2 over a 4.75-year period but in less than one-third of the time. Do the math and you'll love the speed.

Announcing that Manou would stay on as Governor during the campaign has certainly contributed to Ramgoolam's victory just like his steady hand at the BOM during his first contract kept the PM's chances of reelection alive in the face of unrelenting Shaitanomics.

A lot of important and urgent work awaits the Governor-in-waiting. He shouldn't be kept away from his desk any longer.

Inflation Targeting Turns 20

It started in New Zealand, the land of the kiwi -- the bird, not the fruit which is originally from South China -- back in 1989. That was to be followed by Chile a year later and by Canada in 1991.

The reason you want to target inflation is because it is the worst enemy of the poor. Besides there is no real trade-off between economic growth and inflation. And that's so easy to prove. For example the growth rate over the past 9.25 years has been 4.3% but the average inflation rate since July 2005 under Sithanen's toxic medicine has been about 54% higher than what it has been under Federation 2. Industrial relations also tend to improve when trade-unions see that you're serious about fighting poverty.

The UK's Treasury has also evaluated the benefits of inflation-targeting while you can read Canada's interesting experience with inflation control by clicking on the image below.

British MPC Turns 10

Actually, that happened in May 2007. And to mark the event the Treasury of Her Majesty inquired and published the interesting report you can download by clicking on the image below. Here's some of the stuff they found.

Since the inception of inflation targeting, inflation in the UK has been low and stable and economic growth has been very stable. It also confirmed that there is not really a trade-off between inflation and growth or if you prefer that inflation is not only the worst enemy of the poor but also an enemy of growth. Which makes it all the more difficult to understand why Sithanen has been producing such a robust amount of it.