Inflation Targeting is the dominant strategic framework for modern central banking. Under this model, the government or the central bank establishes an explicit, public numerical inflation target, and the policy committee adjusts its tools to hit that index over a medium-term horizon. [1]

Central banks use different consumer price indexes to measure inflation and guide their interest rate choices:

[United States Federal Reserve System] -> Focuses on the Personal Consumption Expenditures (PCE) Index
[Eurosystem / European Central Bank] ----> Focuses on the Harmonised Index of Consumer Prices (HICP)

To prevent short-term energy and food price shocks from driving erratic policy choices, committees monitor Core Inflation metrics. Core inflation strips out highly volatile food and energy components, allowing policymakers to target underlying, structural inflation trends across the economy. [1, 2]