Cadence Research · Reviewed 2026-07-30
What is inflation targeting?
Inflation targeting is a policy framework in which a central bank publicly aims to keep inflation close to a stated rate over time, often 2%. The target gives households, businesses, and markets a reference point for expectations. Central banks still consider growth, employment, and financial stability, but the inflation objective anchors how they explain policy choices.
Why it matters
The distance between current or expected inflation and the target is central to most policy discussions. It explains why central banks can keep rates high even when growth is weak, or cut rates while inflation is falling.
How it appears in official communication
Statements compare inflation developments with the target, explain the outlook, and describe what evidence would increase confidence that inflation will return to target sustainably.
A common misunderstanding
An inflation target does not mean prices must never rise. It means the central bank aims for a stable, low rate of price increases over time.
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Related guides
Primary sources
- Monetary Policy: What are its goals? (Federal Reserve)
- Monetary policy (European Central Bank)
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