The main and most important objective of the single monetary policy is to maintain price stability. In addition, it supports general economic policies, such as full employment and sustainable development.
Why is price stability considered to be so important that it is central to the monetary policy of the Eurosystem? Let’s look at some basics!
We speak of price stability if the value of money remains more or less the same over time. A stable currency preserves the consumers’ purchasing power; this means that a given amount of currency will buy you the same amount of goods and services today and in the future. So, purchasing power is a measure of the value of money.
But how can you talk about price stability when sometimes some prices go up while others go down? Well, a certain amount of price fluctuation is quite normal. The crucial point is that the general level of prices should not fluctuate too much over time. This means that we want to avoid both prolonged price increases (inflation) and prolonged price decreases (deflation).
How can you track price changes and how can you measure price stability?
A basket of goods and services represents a good method for tracking prices changes. This basket contains goods and services from twelve categories that reflect our country’s consumption habits. If you want to know more about the price changes on a national level, have a look at the consumer price index (CPI). If you want to compare prices across European countries, check out the Harmonized Index of Consumer Prices (HICP) or the interactive inflation dashboard.
How do you benefit from a stable currency?
When prices remain relatively stable, you can plan ahead without having to fear that your money will lose its value. The same is true for your family, friends, other consumers, employees and businesses: as the value of money is preserved, they all have a reliable setting for planning. So price stability is the basis for sustainable economic development.