In simple terms
Inflation targeting means a central bank names a number for inflation, says it publicly, and sets interest rates to reach it.
The number is the anchor. Households, firms and markets are meant to plan around it rather than guess where prices are heading.
How it works
The IMF sets out four elements: a central bank mandate for price stability with operational independence, a quantitative inflation target, accountability through transparency, and forward-looking policy drawn from a broad reading of the economy.
Targets usually apply to a headline consumer price index. In advanced economies they usually sit near 2 percent. Some countries publish a single point, others a band such as 2 percent plus or minus 1.
Accountability can be written into law. The Bank of England remit sets a 2 percent target on the 12-month increase in the Consumer Prices Index, calls it symmetric and applying at all times, and requires the Governor to write an open letter whenever inflation strays more than 1 percentage point either way.
The framework keeps shifting. A 2025 study by the Bank for International Settlements of 26 inflation-targeting central banks found advanced economies moving toward strict point targets, while emerging economies keep more flexible ranges and shorter horizons.
Why it matters
The target is the reason a rate decision is news. When inflation runs above it, the central bank is expected to act, and the cost of mortgages and business loans follows.
It also changes who is accountable for prices. A published number makes a miss visible and arguable, rather than a matter of private judgment inside an institution.
Where you will see it
- Central bank statements explaining why rates rose, fell or held.
- Open letters or public explanations when inflation misses the target.
- IMF country reports assessing a monetary policy framework.
- Market commentary on whether a target will be met, and when.
Example
With inflation running above its 2 percent target, a central bank raised its policy rate and said it expected inflation to return to target within two years.
Often confused with
Inflation targeting is the framework. Monetary policy is the wider set of tools a central bank uses, and a single rate decision is one action taken inside the framework.
Key facts
- New Zealand was the first country to adopt inflation targeting, in 1990.1
- The IMF sets out four elements: a price stability mandate with operational independence, a quantitative target, accountability through transparency, and forward-looking policy.1
- By 2010, 26 countries used inflation targeting, roughly half of them emerging market or low-income economies.1
- The Bank of England target is 2 percent on the 12-month increase in the Consumer Prices Index, is symmetric, and applies at all times.2
- A 2025 BIS study of 26 inflation-targeting central banks found advanced economies moving toward strict point targets while emerging economies use more flexible ranges.3
Related concepts
In the news
Quick checkWhat does a central bank promise under inflation targeting?Show answer
To keep inflation at a published numerical goal, often about 2 percent, and to explain publicly when it misses.
Sources
- International Monetary Fund. Inflation Targeting Turns 20, by Scott Roger, Finance and Development. March 2010 (accessed 23 September 2026)
- Bank of England and HM Treasury. Monetary Policy Committee remit letter. November 2023 (accessed 23 September 2026)
- Bank for International Settlements. Moving targets? Inflation targeting frameworks, 1990-2025, by Claudio Borio and Matthieu Chavaz, BIS Quarterly Review. March 2025 (accessed 23 September 2026)
Editorially reviewed by Specialty Digest Editorial TeamLast reviewed September 23, 2026Researched and drafted with AI assistanceReport an issue