What is the role of inflation targeting in monetary policy?

Inflation targeting is a strategy used by central banks to manage inflation by setting a specific inflation rate as a goal for the economy. Central banks, such as the Federal Reserve or the European Central Bank, use tools like interest rates and money supply management to achieve the targeted inflation rate. The goal of inflation targeting is to keep inflation at a stable, low level to maintain purchasing power and economic stability. By providing clear inflation targets, central banks aim to guide market expectations and build confidence in the currency. Effective inflation targeting can help prevent excessive inflation or deflation, contributing to overall economic growth and stability.