LecturerGood morning. We've seen what inflation is; today we ask who actually controls it. The answer, in most countries, is the central bank.
LecturerA central bank's primary job is to keep prices stable — neither rising nor falling too quickly. Stability, above all, is the goal.
LecturerIn practice, most aim for a specific inflation target, usually set at around two per cent a year.
LecturerTheir chief tool for hitting that target is simple: changing the interest rate they set for the whole economy.
LecturerWhen inflation runs too high, they raise rates. Borrowing then becomes dearer, so households and firms spend less.
LecturerThis deliberate cooling of the economy is sometimes described, rather vividly, as putting on the brakes.
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