To help us see through temporary fluctuations in inflation, the Bank uses core inflation, which strips out the volatile components of the CPI, as an operational guide for setting policy in pursuit of the target for total CPI inflation.5 In our baseline forecast, demand is expected to strengthen, gradually absorbing excess capacity in the economy.
As this slack is taken up, core and total inflation are expected to increase to target over the next two years or so. It is flexible. In assessing whether the stance of monetary policy is appropriate to achieve the inflation target, the Bank must make a judgment regarding the horizon for returning inflation to target.