The European Central Bank defines price stability as 2 per cent inflation over the medium term

International Monetary policy Economy & Banking

The European Central Bank defines price stability as 2 per cent inflation over the medium term

Background

The Eurosystem, which consists of the European Central Bank (ECB) and the national central banks of the euro area, carries out a number of tasks to maintain price stability. The ECB's main aim is to maintain price stability, that is, to safeguard the value of the euro.
The Treaty does not give a precise definition of what is meant by price stability. The ECB's Governing Council, after concluding its strategy review in July 2021, considers that price stability is best maintained by aiming for 2% inflation over the medium term.
The ECB treats the Harmonised Index of Consumer Prices (HICP) as the appropriate measure for assessing whether the price stability objective has been achieved.
The target is symmetric: the ECB considers negative and positive deviations from the 2% inflation target to be equally undesirable. A 2% rate is low enough for the economy to enjoy the benefits of price stability while providing a safety margin against the risk of deflation, which matters because there are limits to how far interest rates can be cut.
The target is assessed on inflation in the euro area as a whole, not in any one member country, which makes clear that the focus of ECB monetary policy is the euro area as a single economy.
The Eurosystem is responsible for defining and implementing monetary policy, conducting foreign exchange operations, holding and managing the euro area's foreign currency reserves, and promoting the smooth operation of payment systems. The ECB separately carries out tasks in banking supervision, banknotes, statistics, macroprudential policy and financial stability.

Inflation target: 2% inflation over the medium term Price measure used: Harmonised Index of Consumer Prices (HICP) Symmetry of the target: negative and positive deviations are equally undesirable Who set the target: the ECB's Governing Council, after its strategy review in July 2021 Eurosystem: the ECB and the national central banks of the euro area

Why it matters for exams: Inflation targeting is examined through the two best-documented cases, and the ECB's is the one with a treaty mandate, a named index and an explicitly symmetric target.

Kerala PSCUPSCBank

5 October 2026 Source: European Central Bank, Price stability

In plain words

HICP Harmonised Index of Consumer Prices — The consumer price index compiled on a common basis across EU countries, used to measure euro area inflation.

Eurosystem the Eurosystem — The ECB together with the national central banks of the countries that use the euro.

price stability price stability — A state in which the general level of prices neither rises nor falls persistently.

deflation deflation — A sustained fall in the general level of prices, the opposite of inflation.