Public consultation on the “Inflation target”

10/02/2022

 

The Bank of Israel Law defines the Bank of Israel’s primary objective as “maintaining price stability”.  The price stability target (the inflation target) itself is not defined by law, but is set by a decision of the government in consultation with the Governor.  In 2000, the government decided that as of 2003, the target would be defined as a range of price increases of between 1 and 3 percent per year.  The rate of price increases is measured by the Consumer Price Index published by the Central Bureau of Statistics.

 

Following many years in which the inflation target did not change, and as part of the strategic program first announced by the Governor in September 2019, the Bank of Israel is examining whether to leave the price stability target as currently defined, or whether it is preferable to make adjustments to it.  Should the Bank conclude that there is room to change the current target, it will recommend to the government to act accordingly.

 

As part of the process, the Bank of Israel has for some time been carrying out a number of research studies, which will be published during 2022 as part of a book that the Bank of Israel will edit and publish.  These studies were discussed at a conference that the Bank of Israel held together with senior economists from Israel and around the world.  In addition, the Bank held an international research conference in conjunction with the CEPR, featuring academic researchers, leading economists from Israel and around the world, the central bank governors of Sweden, Switzerland and the Czech Republic, and the President of the Federal Reserve Bank of New York.  Additional stages of the process will be announced in due course.

 

An inflation target examination process is common at central banks around the world.  The US Federal Reserve, the European Central Bank, and the Bank of Canada all recently completed such processes. It is important to emphasize that the process as a whole takes a long-term view.  It began when inflation was relatively low, and is still continuing, following several months in which the pace of inflation increased.  However, the decisions that the Bank of Israel will make in the end will not be affected by inflation in the short term, but rather by the assessment that the Bank will formulate regarding the inflation target that will best serve the Israeli economy in the coming decades.

 

The Bank of Israel is now inviting the Israeli public—organizations, members of academia, companies, and private individuals—to submit opinions on the matter.  The opinions must focus on the advantages and disadvantages of the current inflation target (CPI increase at an annual rate of 1–3 percent) relative to the conditions of the Israeli economy, and of the various potential adjustments such as a different range, a single-point target rather than a target range, a maximum target only, a different price index, and so forth.

 

Opinions should be sent by email to inflation-target@boi.org.il by March 20, 2022.  Please limit submissions to 1,500 words.

 

Opinions, information, or positions sent to the Bank of Israel are sent at respondents’ expense and responsibility, and are provided in order to be used for the Bank of Israel’s purposes, including the publication of research or the fulfillment of its functions and goals by law.

 

The Bank of Israel shall be permitted to make any use of the information submitted as part of this public consultation.  This consultation shall not be viewed as an obligation on the part of the Bank of Israel to take any action, and receipt of an opinion, information, or position from any party shall not obligate the Bank of Israel to engage in conversation with the submitter, take any action, or avoid taking any action.​​​​