The euro will fall, and Trichet will miss his inflation target.

Most important, it prioritizes the unemployment objective over the inflation target.

Likewise, outside the eurozone, Sweden s clear inflation target makes its currency attractive.

If the official inflation target loses credibility, price growth will accelerate further.

Today Britain has an independent central bank with an inflation target of 2 .

By contrast, the credibility associated with pursuing only an inflation target builds on itself.

Some give the central bank the authority to set an inflation target unilaterally others stipulate coordination with the government in setting the target.

Although the United States does not have a formal inflation target, financial markets understand that the Fed aims for an inflation rate close to 2 .

Nevertheless, their expansionary actions have helped to raise long term inflation expectations toward the target levels.

What more could they possibly want? Raise the inflation target, they say, and all will be well.

But the price for this might well be that annual inflation remains significantly above the 4.5 target.

I find it undemocratic, for example, that the ECB can set the eurozone wide inflation target unilaterally.

September headline inflation, at 2.6 , is above the ECB s 2 target as is the latest forecast for 2006 inflation (updated forecasts will be released at the beginning of December).

It may be up to elected politicians to determine the inflation target, but the means deployed to achieve that target are left to the technocrats at the central bank.

The PBC should target the renminbi s rate of real appreciation, rather than the inflation rate under a stable renminbi.

For his part, Bernanke led the intellectual charge toward inflation targeting by central banks, arguing that setting a target for annual inflation was a full and sufficient framework for monetary policy.

In short, although China will miss its inflation target of 4 for this year, price growth will remain under control.

Nor could monetary policy help very much. Quantitative easing is constrained by above target inflation in the eurozone and UK.

It must pledge to boost domestic expenditures, reduce its external surplus, and accept an increase in the ECB s inflation target.

Perhaps if a central bank announced a higher inflation target, and implemented a financial asset purchase program (financed with unremunerated reserves) until the target were achieved, it could have some effect.

The eurozone s inflation target is not a magic number, and it is irrational to let it determine the overall macroeconomic framework.

But, while this approach could work in the US, the European Central Bank is institutionally constrained from raising the inflation target.

Only a shift in strategic focus would be needed to anchor monetary policy with a long run target range for low inflation.

By the start of 2008, it was clear that controlling inflation and cooling an overheating economy had become the government s main economic target.

Not wedded to central bankers obsolete doctrines, he has made a commitment to reverse Japan s chronic deflation, setting an inflation target of 2 .

In the United Kingdom, for example, supposedly temporary factors have been keeping the inflation rate well above the target for almost two years.

As a result, over the last decade, the Chinese authorities implicit target for annual inflation and currency appreciation has been only about 3 .

In most countries, at most times, inflation should be kept very low and central banks should anchor inflation expectations with a stable long term target, although the alternative of targeting nominal GDP deserves to be discussed.

At its most recent policy meeting, the ECB left its policy rate unchanged, citing inflation half a percentage point above the official 2 target.

The answer came in the form of inflation targeting, which says that whenever price growth exceeds a target level, interest rates should be raised.

Not surprisingly, central bankers who are committed to a formal or informal inflation target of about 2 per year are unwilling to abandon their mandates openly and to assert that they are pursuing a high rate of inflation.

Bernanke also noted the possibility of temporarily raising the Fed s medium term inflation target (a policy that I suggested in this column in December 2008).

Should CPI inflation be more than one percentage point above or below the target, the governor of the Bank of England is required to write an open letter to the Chancellor of the Exchequer explaining the reasons for this and the measures which will be taken to bring this measure of inflation back in line with the 2 target.

At the beginning of June, the RCB s governor, Sergei Ignatyev, admitted not only that this year s inflation target would be missed, but also that the RCB is not prepared to pursue inflation targets at the expense of a competitive exchange rate.

Significant inflation might be hard to contain, however, especially if the central bank loses credibility Would the public really believe that the central bank is willing to push interest rates sky high and kill growth in order to contain inflation, after it abandoned its earlier inflation target in order to foster growth?

Inflation!

Financial conditions could be controlled with one tool the short term interest rate deployed exclusively in pursuit of a target, implicit or explicit, for consumer price inflation.

But central banks in both Europe and the US thought that a 2 annual inflation rate would be a desirable target (for the Europeans a desirable maximum).

Moreover, the ECB has the authority to set the eurozone wide inflation target, and could set it higher for two or three years, without any treaty violation.

With little wage inflation, high goods inflation is unlikely.

Prices in general, ...so inflation, you had 5x inflation.

Accordingly, and for the first time, the Governor had to write publicly to the government explaining why inflation was more than one percentage point higher than its target.

Forget Inflation

Inflation adjustment

inflation (percentage)