Inflation target

One of the Central Bank of Iceland’s main objectives is to promote price stability. On 27 March 2001, a formal inflation target was adopted, under which the Central Bank aims for an annual rate of inflation, measured as the twelve-month increase in the CPI, of as close as possible to 2½%, on average. If inflation deviates from the target by more than 1½ percentage points in either direction, the Bank must submit a public report to the Government, explaining the reasons for the deviation, the Bank’s intended response, and the length of time it will take to bring inflation back to target. The inflation target is described in the joint declaration of the Bank and the Government.