Slideshows | October 16, 2015

What is the target inflation rate in Europe? Four inflation facts

Inflation is so important that authorities regularly announce it and the media tell the public about it.

Economists write many papers about it. It eats away at the spending power of money. Many central banks adjust monetary policy to target a set rate of inflation.

With this in mind, eZonomics brings you this quick look at four inflation facts from ING Luxembourg’s My Money.

Want more?
For six important terms about inflation, including deflation, index-linking and compound interest, take a look at this eZonomics slideshow. An eZonomics video suggests ways to protect against the bad effects of inflation, including reinvestment.

 

1

Going up

Inflation is an increase in the general level of prices of goods and services over time. The inflation rate is the percentage change over the previous year.

2

Spending power

When prices increase, every euro, dollar, pound or zloty buys fewer goods and services: inflation reflects a reduction in our purchasing power.

3

Beware the inflation spiral

If left uncontrolled, inflation could create an “upward spiral”. Rapidly increasing prices might mean workers want to earn more, which in turn increases production costs – further driving up prices.

4

Target rate

In the eurozone, the European Central Bank’s main task is to maintain the euro’s purchasing power and thus price stability in the euro area. It targets inflation below, but close to, 2% in the medium term.

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