The Inflation Game: Targets, Practices and the Social Production of Monetary Credibility

In recent years, central banks have continued to preach inflation targeting even as they have pursued a wide range of unorthodox inflation-management policies. As the disconnect between discourse and practice grows, there is a growing risk of a serious credibility gap. This article seeks to shed some light on these dilemmas by looking backwards, focusing on the ‘Great Inflation’ in Britain in the 1970s and early 1980s and the successive failures of Labour’s incomes policy and the Conservatives’ monetarist experiment. These historical experiences suggest that for inflation policy to work it needs to be both understood as and made credible—which means that key actors need to not only learn that this is how the inflation game works, but also put into place a whole range of supporting practices that reflect and reproduce this conviction. In spite of the many claims by economists and central bankers to the contrary, quantitative targets do not in fact anchor inflationary expectations – social practices instead play that crucial anchoring role. At the same time, these cases both underline the particular dilemmas associated with a reliance on hard quantitative targets in times of social instability – lessons that do not bode well for our present moment.