What is inflation targeting?: Yahoo U explains?

Inflation targeting is when grown-ups in charge try to keep prices from going up too fast, like keeping your piggy bank full for longer.

Imagine you have a toy store. Every year, the price of toys goes up just a little bit, maybe 2%. That's inflation. It’s like when your favorite candy costs a bit more each year.

Now imagine if the price of toys went up by 10% every year. That would be too much inflation. You’d need more allowance to buy all those toys!

So, grown-ups who help run the country, like central bankers, use something called inflation targeting. It's like setting a goal for how much prices can go up each year, maybe 2%, like the example.

They watch prices and decide whether to give more money to banks or take some away, so prices don’t jump too high or drop too low.

It’s like having a special rule for your piggy bank: you can only spend a little bit more each year. That way, your savings last longer, and everyone is happy!