As the global economy heads into an ominous autumn, the goal of reducing inflation to 2% in both the US and the eurozone is prompting an increasing number of questions. In recent months, economists such as Nobel Prize winner Paul Krugman and Olivier Blanchard, former chief economist at the International Monetary Fund (IMF), have called on central banks to raise the inflation target from 2% to 3%, to avoid "too much" tightening, which would plunge economies into recession.

"In the fight against inflation, taking the final step – for example, rapidly coming down from 4% to 2% – is likely to be difficult," Blanchard pointed out in an article published at the end of June and co-authored by Ben Bernanke, former Chairman of the US Federal Reserve (Fed). The impact on the labor market, in particular, is likely to be deleterious.

The case for raising the inflation target is based on a single observation: since 2020, when this 2% figure was retained as the Fed's inflation target, the economy has changed. "The energy transition, relocalization efforts, the rise in employees' bargaining power, demographic aging – all these things play in favor of spontaneous inflation above 2%," explained Patrick Artus, economic advisor at Natixis.

"If we want to maintain a target of 2%, it will mean resorting to extremely high real interest rates for a very long time. Not only is this highly detrimental to growth, but also, for example, to investment in the energy transition."

The 2% figure is under scrutiny from numerous economists since, despite being firmly established by the Fed and the European Central Bank (ECB), it lacks foundation in any economic principle. The Central Bank of New Zealand was the first to adopt this numerical target in the 1980s, following a period of high inflation.

The aim was to give substance to its credibility, by communicating a clear objective, and to "anchor" the expectations of economic agents – in other words, to enable banks, companies and even households to reason on the basis of the same inflation scenario, in this case a reasonable one. "It wasn't the most scientific process in the world," admitted Michael Reddell, former economist at the Reserve Bank of New Zealand.

When they decided to attach a numerical target to their mandate to maintain price stability, both the Fed and the ECB also agreed on this figure of 2% inflation. Low enough to reassure, but high enough to keep the economy running smoothly. Inflation that is too low or zero, in fact, entails the risk of a deflationary spiral, and deprives monetary policy of room for maneuver in the event of a slowdown, since it then becomes difficult to lower interest rates to give the economy a bit of a boost.

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