As dedicated followers of fashion, European central bankers have also been following the intellectual trends set by others. When inflation targeting was in vogue in the 1990s, the European Central Bank adopted the new regime and became a paid-up subscriber to the economic theory that lay behind it. Inflation targeting turned out to be a stunning success, for about a decade. That ended at about the time a series of crises descended on Europe. The last time the core rate of inflation in the eurozone was above 2 per cent was in 2008.

The ECB’s persistent inability to reach the inflation target of close to, but below, 2 per cent has nothing to do with the level of the target or the inbuilt asymmetry. Inflation targeting is critically premised on the assumption that central bank policy targets have credibility with the general public. There was a time, many years ago, when trade unions and employers used the ECB’s target as a basis for their wage negotiations. Nobody does that now. The ECB has lost control of inflation. It is not its fault. But it is a reality. 

The adoption of another type of target will not change anything. A debate is currently raging about an alternative concept: price level targeting. The difference is that this regime compensates for past deviations from the target, while inflation targeting lets bygones be bygones. The US Federal Reserve has just adopted what I would call flexible price level targeting, allowing for inflation to overshoot the target to compensate for below-target performance in the past but without committing itself to a formal future price level. US inflation may very well shoot above 2 per cent as the economy recovers, but there is no chance of that happening in Europe. In August, annual core inflation in the eurozone hit an all-time low of 0.4 per cent. The economic recovery has weakened after an initial post-lockdown surge.