How far is each central bank from its inflation target? Which banks have achieved price stability?
Data as of May 15, 2026Almost every major central bank — the Fed, the ECB, the Bank of England, the Bank of Canada, the Bank of Japan — aims for inflation of roughly 2% per year. To a newcomer this sounds wrong. Wouldn't zero inflation be better? Wouldn't prices being stable mean your salary keeps its value? The answer is that a small, predictable amount of inflation is genuinely useful, while zero is dangerous. It gives central banks room to cut nominal rates without hitting the zero lower bound during recessions, it allows relative wages and prices to adjust without anyone having to take a pay cut in nominal terms, and it stays a safe distance from outright deflation, which is harder to escape than inflation (Japan spent two decades trying).
The inflation gap is the difference between current inflation and the target. Suppose the ECB targets 2.0% and the latest eurozone HICP print is 2.3%. The gap is +0.3 percentage points — slightly above target, not a crisis, probably tolerable. If that gap widens to +1.0pp or more and stays there for several months, the ECB will hold rates higher for longer and is unlikely to cut. A gap of +5pp or more — as the eurozone saw in 2022 when HICP peaked above 10% — forces aggressive tightening regardless of the cost to growth.
One more distinction matters: headline vs core inflation. Headline is the full basket including food and energy; core strips those out because they swing on weather, oil prices, and geopolitics rather than underlying demand. Central banks watch both, but they lean on core to judge how entrenched inflation has become. A headline spike from oil that does not bleed into core is something monetary policy cannot really fix; a rise in core is.
Headline CPI is too noisy for policy purposes, but standard core (ex food and energy) is itself an imperfect filter. The Atlanta Fed's sticky-price CPI isolates components whose prices change infrequently (rent, medical services, education) — these track expectations and wage dynamics better than flexible-price items. The Cleveland Fed's median CPI and the Dallas Fed's trimmed-mean PCE use cross-sectional robust statistics rather than the food-and-energy exclusion, and they typically Granger-cause headline turning points by two to three quarters. Post-2023, services ex-housing (the "supercore" measure Powell highlighted) became the FOMC's preferred gauge because shelter CPI lags market rents by 12-18 months and was distorting core readings, and because services ex-housing maps most cleanly to wage growth via the labor-cost share of services production.
Pass-through and second-round effects determine whether an inflation shock is transitory. Import and energy shocks generate first-round pass-through with elasticities typically in the 0.05-0.15 range for advanced economies; the danger is when these spill into nominal wage demands and producer pricing power, generating a wage-price spiral. The Phillips curve flattens at low inflation (Hazell-Herreño-Nakamura-Steinsson 2022) but exhibits convexity in elevated-inflation regimes, so the marginal disinflationary cost of additional slack falls as inflation rises. Expectations anchoring is monitored via multiple instruments: the University of Michigan one-year and 5-10 year measures, the NY Fed Survey of Consumer Expectations (SCE), professional forecasters (SPF, BlueChip), and market-implied 5y5y forward breakevens, which the ECB historically treated as the single most important medium-term signal. De-anchoring shows up first in the dispersion of household expectations, not the median — Coibion-Gorodnichenko (2015) document this and the policy implications are significant.
| Central Bank | Current Inflation | Official Target | Gap | Status |
|---|---|---|---|---|
| Federal Reserve | 0.0% | 2.0% (PCE) | -2.0pp | Below |
| European Central Bank | 2.0% | 2.0% | -0.0pp | On Target |
| Bank of England | 3.4% | 2.0% (CPI) | +1.4pp | Above |
| Reserve Bank of Australia | 3.7% | 2–3% band | +1.7pp | Above |
| Bank of Japan | 0.0% | 2.0% | -2.0pp | Below |
| Bank of Canada | 2.4% | 2.0% (midpoint) | +0.4pp | On Target |
| Reserve Bank of India | 5.0% | 4.0% (±2%) | +3.0pp | Above |
| Swiss National Bank | N/A | 0–2% range | N/A | — |
| People's Bank of China | N/A | ~3.0% | N/A | — |
Central banks use inflation targets as anchors for monetary policy and public expectations. When inflation significantly exceeds the target, central banks typically tighten policy (raise rates). When inflation falls below target, they may ease (cut rates or implement QE).
Most major central banks target 2% inflation — a level considered optimal for price stability while leaving room for real interest rates to fall in recessions. Exceptions include the RBI (4%), SNB (0–2%), and PBOC (~3%).
See the full methodology for details on how Taylor Rule models incorporate inflation gaps into theoretical rate calculations.