An inflation target is a specific rate of inflation that a central bank, such as the Federal Reserve in the United States, sets for itself to aim towards achieving. The goal is to keep prices stable and avoid extreme fluctuations in the general price level within an economy over time.
Inflation can be measured by tracking changes in consumer prices or other economic indicators like wages or production costs. Central banks use various tools such as monetary policy, interest rates, and quantitative easing to control inflation levels. They may also set specific targets for different measures of inflation, such as core inflation (excluding certain volatile items) or headline inflation (including all goods and services).
The inflation target is an important part of a central bank's monetary policy framework, providing transparency and guidance to the public on its goals. It helps to maintain price stability, which in turn supports economic growth by promoting stable consumer spending patterns over time.