Ida Wolden Bache: Monetary policy and inflation

Speech by Ms Ida Wolden Bache, Governor of Norges Bank (Central Bank of Norway), at the Centre for Monetary Economics (CME) / BI Norwegian Business School, Oslo, 20 October 2022.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Accompanying charts of the speech. 

Introduction

Good afternoon everyone, and a big thanks to the Centre for Monetary Economics, which has held this event for more than 20 years. As I recall, it was first held just two months after Norges Bank had been assigned an inflation target for the conduct of monetary policy. Since then, the way we practice inflation targeting has evolved. But the primary objective of monetary policy has always remained firm, which is to ensure low and stable inflation.

Chart: High inflation in many countries

Up until fairly recently, inflation was indeed low and stable. If anything, many central banks worried that inflation would remain too low. Now they have the opposite concern. Both in Norway and in many other countries, inflation is higher than seen in several decades.

The increase in inflation raises a number of questions: Why is low and stable inflation an objective of monetary policy? Which prices should monetary policy stabilise? And how do we strike a balance between the aim of low and stable inflation and the aim of high and stable employment in the current environment?

These questions are the theme of my lecture here today. But first, let me say a few words about how we got here.