What is Price Stability?
This section explains the importance of price stability in an economy, including how the Central Bank defines and achieves price stability.
This section explains the importance of price stability in an economy, including how it reduces uncertainty, supports better-informed decision-making, fosters favorable conditions for long-term sustainable economic growth, protects purchasing power, and ensures maintaining national competitiveness on the global stage. In this sense, price stability is an important foundation for long-term economic wellbeing.
Further, it discusses the price stability objective of the CBA. As enshrined in the Constitution and the law the primary objectives of the CBA are to ensure price stability and financial stability. The CBA emphasizes that these goals are a means to an end of improving the nation's welfare. The CBA defines price stability as a low and stable inflation rate with well-anchored inflation expectations, and sets a numerical inflation target to guide price-setting decisions and shape inflation expectations.
To define and achieve price stability, the Central Bank of Armenia sets out a numerical point target for inflation in the medium term that is consistent with its understanding of price stability. Inflation is the general increase in prices of goods and services in an economy over time. Inflation in Armenia is measured using the Consumer Price Index (CPI), which tracks price changes for a basket of goods and services commonly purchased by households. The CBA also considers other measures of inflation, such as Core Inflation and Non-Traded Sticky Price Inflation, to better understand the inflationary environment and its underlying drivers.
To achieve its price stability objective, the CBA uses a flexible inflation targeting framework. This means that the central bank seeks to achieve price stability over a medium-term horizon rather than on a period-by-period basis. Flexible inflation targeting ensures that price stability is achieved without undue economic and financial instability. It provides a sensible approach for responding to economic shocks, and reflects the fact that policy actions take time to transmit through the economy.