Based on research and decades of experience, we define that level as 2 percent a year—an inflation objective similar to that adopted by most other major central banks.1 Individual prices, of course, move up and down by more than 2 percent all the time. Such movements are essential to a well-functioning economy. They allow supply and demand to adjust for various goods and services.
By “inflation,” we mean price changes as a whole for all of the various goods and services that households consume. No one likes high inflation, and it is easy to understand why.