Inflation target
The rate a central bank aims to keep inflation at, such as 2%.
3 min read · Reviewed September 2026
In plain words
Most central banks target 2% annual inflation — high enough to avoid deflation risk, low enough to be barely noticeable. The target is usually symmetric: being below 2% is as unwanted as being above it.
Frequently asked questions
Why do central banks target 2% inflation?
2% is high enough to give room for real interest rate adjustments and avoid deflation, but low enough to not be noticeable in daily life. New Zealand pioneered the 2% target in 1990; most major central banks now share it.
Further reading
What happens when a central bank misses its inflation target?
In many countries, the central bank governor must write an open letter to the finance minister explaining why the target was missed and what steps are being taken. In the UK this is triggered when CPI deviates more than 1 percentage point from 2%.
Further reading