Inflation target

1. UK - Bank of England.

Guidance from a central government to an operationally independent central bank, in relation to inflation in its jurisdiction.

In the UK, the related measure of inflation is the Consumer Prices Index (CPI).

Inflation target - UK - Bank of England

"To keep inflation low and stable, the Government sets us an inflation target of 2%. This helps everyone plan for the future.

If inflation is too high or it moves around a lot, it’s hard for businesses to set the right prices and for people to plan their spending.

But if inflation is too low, or negative, then some people may put off spending because they expect prices to fall. Although lower prices sounds like a good thing, if everybody reduced their spending then companies could fail and people might lose their jobs.

If we miss the inflation target by more than 1 percentage point either side of the target, we must tell the Government why."

Bank of England - 2021.

2.

Similar goals and measures for central banks in other jurisdictions.

For the European Central Bank (ECB), the related inflation measure is the Harmonised index of consumer prices (HICP).

ECB's monetary policy strategy

"The Governing Council [of the ECB] considers that price stability is best maintained by aiming for a 2% inflation target over the medium term.

This target is symmetric, meaning negative and positive deviations of inflation from the target are equally undesirable.

When the economy is operating close to the lower bound on nominal interest rates, it requires especially forceful or persistent monetary policy action to avoid negative deviations from the inflation target becoming entrenched.

This may also imply a transitory period in which inflation is moderately above target.

The Governing Council also confirmed that the set of ECB interest rates remains the primary monetary policy instrument.

Other instruments, such as forward guidance, asset purchases and longer-term refinancing operations, that over the past decade have helped mitigate the limitations generated by the lower bound on nominal interest rates will remain an integral part of the ECB’s toolkit, to be used as appropriate."

ECB press release - 2021.

See also

• Asset purchases
• Bank of England
• Central bank independence
• Consumer Prices Index (CPI)
• Effective lower bound
• European Central Bank (ECB)
• Financial stability
• Forward guidance
• Flexible inflation targeting
• Harmonised index of consumer prices (HICP)
• Inflation
• Jurisdiction
• Longer-term refinancing operations
• Monetary policy
• Monetary Policy Committee
• Monetary Policy Report
• Official Bank Rate
• Zero lower bound

External link

• The UK's inflation target - Bank of England