The rate of inflation has risen markedly within a short period since 2013, but the Bank’s price stability target aims at creating a virtuous cycle in which wages and prices increase in a balanced manner with an upturn in economic activity, and at maintaining it stably.
In other words, normalisation describes a situation in which monetary policy is shifting from a stance that aims to raise the inflation path – for example, by making the policy stance more expansionary – to one that aims to cement the inflation path at the target. There are three important distinctions we need to make about normalisation.