Why central banks target 2 percent inflation and not zero

The surprising origins and economic rationale behind the 2 percent inflation target.

In 1989, New Zealand's Reserve Bank set a precedent by adopting an inflation target of 0% to 2%, a figure that was, by some accounts, chosen somewhat arbitrarily. This approach quickly gained traction, with major central banks like the Bank of England and the U.S. Federal Reserve adopting similar targets.

By 2012, the Fed had officially established a 2%…