BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -This is known as the target rate, which is normally set at around 2% to 3%. The principle of inflation targeting is based on the belief that long-term economic growth is best achieved by maintaining price stability, and price stability is achieved by controlling inflation.

Detailed explanation-2: -This is because price stability – which means low and stable inflation – contributes to sustainable economic growth. Targeting inflation of 2 to 3 per cent avoids the many costs to the economy from inflation that is too high or too low.

Detailed explanation-3: -The Federal Reserve targets an inflation rate of 2 percent, in part to stave off deflation in the event of an economic downturn. Maintaining a healthy level of inflation could also give the central bank additional room to lower interest rates when it wants to stimulate the economy.

Detailed explanation-4: -The 2% inflation target is key to the Federal Reserve’s vision for stable prices in the U.S. economy, according to the Federal Reserve Bank of St. Louis. Canada, Australia, Japan and Israel are among the many economies that include 2% in their inflation rate targets, according to the International Monetary Fund.

Detailed explanation-5: -1] Creeping Inflation If the prices increase by 3% or less annually, then such inflation is creeping inflation. Such inflation is not harmful to the economy. In fact, as per the Federal Reserve, a 2% inflation rate is desirable. It is necessary for the economic growth of a country.