Inflation and the transitory effects The CPI is used by the Riksbank to target inflation mainly because it is familiar, published monthly with a short time lag and seldom has to be revised. However, using the CPI as a target variable is liable to face monetary policy with explanatory problems. The past year is a case in point. The low rate of inflation stemmed mainly from transitory effects; the consolidation of government finance and increased confidence in economic policy helped to strengthen the exchange rate. During 1996 it proved possible to lower the instrumental rates almost 5 percentage points. Altogether, in 1996 decreased interest costs and the stronger exchange rate had a downward effect on the CPI of around 1 percentage point. In some countries the inflation target is assessed in terms of the CPI with various components excluded, for example indirect taxes and subsidies or mortgage interest costs. It may then be asked whether the CPI is the most appropriate target variable and whether some measurement of underlying inflation might be preferable. An advantage of focusing on a single underlying indicator is that it might help the Riksbank in its contacts with the general public and make monetary policy more transparent. Analysis and debate would be concentrated on factors that monetary policy influences. BIS Review 32/1997  -2-  This, however, presupposes the existence of an underlying yardstick that can take every conceivable transitory effect into account. Such measurements are difficult to construct.
With inflation too high, we are focused on restoring price stability, while maintaining a strong labor market. Before I go any further, I should give the standard Fed disclaimer that the views I express here are my own and do not necessarily reflect those of the Federal Open Market Committee (FOMC) or anyone else in the Federal Reserve System. Shared Impacts It's striking to think that just two years ago, the U.S. economy was reaching the trough of the COVID-19 recession. Back then, we were living through unprecedented lockdowns. And we had no way of knowing that this would be the shortest recession on record, or that the rebound would be so dramatic. If we think about the global pandemic as a common factor, shutdowns, contractions, and rapid rebounds were the shared impacts across countries around the world. But so were supply-chain bottlenecks, shortages in semiconductors, and backlogs at portsissues we grapple with today. And just like the United States, other countries have experienced imbalances in demand. Since the initial lockdowns, people have spent more of their money on electronics, cars, and furniture-and less on entertainment, travel, and restaurants. 1/5  BIS - Central bankers' speeches  Many nations also showed considerable resilience of economic activity through the Omicron wave. But global risks remain. The BA.2 variant is now fueling a rise in cases in some countries, including China, Hong Kong, and the United Kingdom. Their experiences bear close monitoring.