Without a strong nominal anchor, expectations of inflation will adjust when inflation is away from the target range, making it harder to return to target. We will get better outcomes if people are confident that when we get pushed away from the target, we will return to target. The design of the monetary policy framework can help here.
In my view, it is best if the nominal anchor has a medium-term focus, not a short-term one. In this respect, the longstanding formulation of the Australian inflation target with its focus ‘on average over time’ is appropriate.