The Credibility of Inflation Targets

Arunima Sinha, a Global Economist at Morgan Stanley, discusses the significance of central bank inflation targets for market participants and economic activity. She uses the examples of the South Africa Reserve Bank (SARB) and the Brazilian Central Bank (BCB) to illustrate how successfully anchoring inflation expectations requires more than simply announcing a target; it necessitates a credible track record of hitting the target, institutional strength, political consensus, and consistent actions from both monetary and fiscal authorities. Sinha argues that the Federal Reserve's experience, with inflation both significantly below and above its target in recent years, supports this conclusion. The podcast emphasizes the complexities involved in managing inflation, particularly in open economies where factors like fiscal targets and exchange rate movements significantly influence inflation.