History of the CNB’s inflation targets

In the pursuit of its monetary policy objective, i.e. maintaining price stability, the central bank can opt for any one of several monetary policy regimes. In December 1997, the CNB Bank Board decided to change its monetary policy regime, and at the start of 1998 it switched to inflation targeting. The main features of inflation targeting are a publicly announced inflation target, the use of a macroeconomic forecast and open communication by the central bank with the public.

Target ranges and bands

Following the launch of inflation targeting, the CNB’s inflation targets were gradually adjusted to the needs of the transforming economy. In the initial years, they were set in terms of net inflation, i.e. the consumer price index adjusted for administered prices and changes to indirect taxes. The inflation targets took the form of a range and their fulfilment was only assessed as of the last month of the year.

Chart – Target ranges and bands

In 2002, the CNB switched to targeting headline inflation, which is easier for the public to understand and can therefore better anchor inflation expectations. Between 2002 and 2005, the target took the form of a linearly declining band. In January 2002 the band was 3–5% and it then decreased gradually to the envisaged level of price stability (2–4%), to be achieved in December 2005. 

Point inflation target

Since 2006, the inflation target has taken the form of a single point. It was initially set at 3%, i.e. in the middle of the previous target band. In 2010 (pdf, 29 kB) it was lowered to 2%, as the gradual process of transformation of the economy had been completed from the monetary policy perspective. The CNB’s current target is in line with the practice of advanced economies and will therefore remain at 2% until the Czech Republic adopts the euro.