The ECB aims for prices to rise 2% a year over the medium term. Not 0%. Since 2021 it says a miss below 2% counts as much as a miss above.
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In a bad downturn, central banks cut rates so people borrow and spend. A rate can’t go far below zero. With prices rising 2%, a 0% rate is already −2% after prices: room to help.
At 2% a year, €1,000 buys about €820 of today’s things after 10 years. At 0% it would still buy €1,000. That slow cost pays for the room to cut.
Falling prices sound nice. But if things are cheaper next month, people wait to buy, shops sell less, and every debt gets heavier. Central banks fear that more than a little inflation.
New Zealand set the first target, 0 to 2%, in 1990. Others followed, the US formally in 2012. In September 2026, euro-area prices were 3.8% higher than a year before (Eurostat).
A 2% target leaves room to cut rates in a downturn and keeps falling prices away.
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Compare your country’s inflation with 2%.
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