inflatietargets

Inflatietargets refer to a monetary policy framework in which a central bank publicly commits to achieving a specified rate of inflation over a medium-term horizon, with the aim of maintaining price stability. The term is commonly used in discussions of inflation targeting, a standard approach adopted by many central banks since the 1990s.

Key elements include a publicly announced target, a clearly defined horizon, and transparency about the policy framework. Targets are usually numerical (for example, 2 percent) or presented as a range (such as 1–3 percent). The target serves to anchor inflation expectations and guide monetary policy decisions.

Implementation relies on the central bank’s ability to influence inflation through policy instruments such as the policy interest rate, along with communication and forward guidance. In some systems, unconventional measures may be used in extreme conditions. The framework also depends on central bank independence and credibility to ensure that the announced target influences expectations and behavior in the economy.

Effectiveness and criticisms: inflation targeting can improve credibility, stabilize long-run inflation expectations, and enhance policy transparency. Critics argue that strict targets may underweight real economic activity or financial stability, and that measurement issues (different price indices) or supply shocks can complicate adherence. Some advocate flexibility, allowing for temporary deviations or consideration of output gaps while maintaining discipline around the longer-term objective.

Examples: the United States uses a 2 percent target for the personal consumption expenditures price index; the European Central Bank aims for inflation close to 2 percent over the medium term; the Bank of England targets 2 percent CPI within a tolerance band.