And, besides lower unemployment, the overall labour force has expanded as well in recent years, reflecting increasing labour participation rates.2 A faster return to full employment – or what economists call the “non-accelerating inflation rate of unemployment” – is clearly supportive of price stability, since it heralds a tighter labour market and stronger wage pressures.
Of course, this implies the need for short-term flexibility in the target, but a well-designed inflation-targeting regime allows for temporary deviations from target in the face of shocks. Provided the framework retains credibility, that flexibility can and should be used. Price-level targeting There is one final consideration.