The U.S. Federal Reserve formally announced a 2 percent inflation target in 2012 for the annual change in consumer prices.
The Federal Open Market Committee said that a 2 percent rate of inflation over the longer run, measured by the annual change in the price index for personal consumption expenditures, was most consistent with its dual mandate. That mandate includes maximum employment and stable prices.
The target is not a promise that inflation will equal exactly 2 percent every month or every year. Prices can move because of energy shocks, supply disruptions, taxes, exchange rates, and changes in demand. The central bank evaluates trends and expectations over time.
The Federal Reserve’s preferred inflation gauge is the PCE price index rather than the CPI. The two measures can differ because they cover goods and services differently and use different weighting methods.