Target and actual inflation
The inflation target is defined as a point with a tolerance band.
Such formulation of the target brings considerable advantages in terms of efficient communication with the general public. The target represents a clear and precise signal of the level of inflation that the central bank strives to achieve. Besides, the target is symmetrical, which provides a leeway to the central bank to communicate effectively if the target is missed in either direction. As it is not possible to keep inflation on target each and every month, the target set will provide a general idea of the monetary policy’s medium-term focus.
The width of the tolerance band reflects interest in the stabilisation of economic activity, as it provides scope for the flexibility of monetary policy in the period ahead without any detriment to its credibility. The tolerance band indicates a comfort zone providing for the fact that there may be many small transitory shocks causing short-term volatility of inflation, but not requiring a monetary policy response.
The target is continuous.
Point inflation target with a tolerance band is defined for each month of the year. This means that the achievement of inflation target is watched continuously, not only at a particular point in time (year-end). The continuity also helps anchor inflation expectations in situations when a large shock pushes inflation temporarily away from the targeted level.
Target and actual inflation, by month
(y-o-y growth, in %)