Global Context
Why Flexibility Is Valued in Inflation Targeting
International experience shows that inflation targeting frameworks must balance credibility (low, stable inflation) with flexibility (space to respond to supply shocks).
- The IMF recognises Flexible Average Inflation Targeting (FAIT) as a variant, adopted by the US Federal Reserve in 2020, which allows inflation to temporarily overshoot the target to make up for past undershoots.
- Advanced economies typically target 2% inflation; emerging markets often target higher rates (3%–5%) given more volatile supply conditions, higher food shares in consumption baskets, and greater exposure to external shocks.
- India's 4% target is consistent with its peer group at similar income levels, per capita GDP, and economic complexity.
- An inflation target that is too tight relative to structural economic conditions can force unnecessarily high real interest rates, suppressing investment and growth.
● Tracked since May 05, 2026 · last seen August 17, 2026 · updates as the daily brief publishes
See it in today’s brief.
Daily current affairs with every static concept explained in place.
Read the daily brief