Inflation Targeting Faces a Test

Inflation targeting remains the dominant monetary-policy framework, but persistent deviations from the 2% objective are raising questions about how central banks should adapt without undermining credibility. 

• Inflation targeting has provided a clear anchor for markets since its adoption in the 1990s, but the 2% objective itself has limited empirical justification. 
• Measuring persistent inflation has become harder as services and technology account for a larger share of consumption, while recent price shocks have complicated policymakers’ reaction functions. 
• With inflation still above target but expectations anchored, central banks face a difficult balance between restoring credibility, supporting growth and resisting political pressure on monetary policy. 

Explore the full commentary for the implications of a potential recalibration of monetary-policy frameworks.