The 2022 global inflation surge tested inflation-targeting frameworks under severe supply shocks. This column shows that, despite earlier and sharper tightening, inflation targeting central banks did not achieve systematically better outcomes than their non-targeting peers. Instead, credibility and timely action mattered more than institutional labels. As supply shocks driven by geopolitics, climate change, and the energy transition become more frequent, inflation targeting frameworks will need to adapt and evolve to remain effective in this new environment.
When inflation surged across the globe in 2022, many expected inflation-targeting (IT) central banks to fare better. Their clear mandates, transparent communication, and established credibility were thought to provide an edge in anchoring expectations. Yet, as prices soared, that advantage proved less evident. Unlike past demand-driven booms, this surge was powered by massive supply-side shocks. Russia’s invasion of Ukraine sent energy and food prices skyrocketing, compounding the lingering supply chain bottlenecks and pandemic aftershocks, triggering the sharpest rise in global inflation in decades (see Madeira et al. 2023). Central banks across the world scrambled to respond, but their results were surprisingly similar irrespective of whether they officially targeted inflation or not. The episode reignited a fundamental question: are inflation-targeting regimes inherently better at preserving price stability, or can other frameworks deliver equally credible results when policy is coherent and communication is clear?
Inflation targeting was designed to anchor expectations and enhance central bank credibility. For over three decades, the framework proved effective in a world where inflation was largely demand-driven. Yet 2022 posed a different challenge, with a predominantly supply-side inflation shock that conventional tools could not easily contain.
As was recently argued by policymakers and academics (Greene 2025, Hofmann et al. 2024, Nuño et al. 2023, Hernández de Cos 2025), the global economy may be entering a period characterised by more frequent and overlapping supply shocks, arising from factors such as geopolitical fragmentation, climate change, and energy transition. In our new IMF Working Paper (Imam and Poghosyan 2025), we examine how well inflation targeting regimes performed under these conditions.
Inflation targeting central banks raised rates faster, but achieved no better inflation outcomes
Using a global sample of 33 inflation-targeting and 37 non-targeting countries, we compare inflation outcomes, expectations, and output dynamics before and after the 2022 supply shock. The results are striking. Inflation outcomes were broadly similar across inflation targeting and non-targeting groups (Figure 1). Average inflation peaked at around 9% on average in both sets of countries, with no significant difference. Even though inflation targeting central banks tightened more aggressively than non-targeting peers (Figure 2), inflation declined at a comparable pace, and long-term expectations remained anchored in both groups.
In other words, inflation targeting central banks responded more aggressively, yet inflation outcomes were broadly similar. This finding contrasts sharply with the conventional wisdom that formal targeting frameworks deliver superior inflation control through credibility and communication.
As Blanchard and Pisani-Ferry (2022) and Bernanke and Blanchard (2023) have noted, much of the 2022-23 inflation dynamics outside the US reflected global supply disturbances rather than domestic demand pressures. In such an environment, even credible central banks have limited leverage: rate hikes cannot resolve disrupted supply chains or restore grain exports from a war zone.
Figure 1 CPI inflation in inflation targeting and non-inflation-targeting countries
Figure 1a IT countries
Note: The sample includes 33 Advanced Economies (AE) and Emerging Market (EM) inflation targeting countries. Dotted line denotes the supply shock.
Figure 1b Non-IT countries
Note: The sample includes 37 advanced economies and emerging markets non-inflation targeting countries. The dotted line denotes the supply shock.
Figure 2 Event study analysis: Evolution of average policy rates in inflation targeting and non-inflation-targeting countries after controlling for country-specific unobserved heterogeneity
A) Central bank policy rates
Figure 2A Central bank policy rates
B) Money market rates
Figure 2b Money market rates
Note: The figure shows how average central bank policy rates and money market rates evolved around the 2022 supply shock in inflation targeting and non-inflation-targeting country groups, with 95% confidence intervals. See Imam and Poghosyan (2025) for details of the empirical analysis.
Credibility helped, just not where it was expected
Inflation targeting was not designed for this kind of world. The framework assumes that inflation mainly reflects excess demand, and that credible signals can anchor expectations and guide wage and price setting. But when price pressures are externally driven, even the most credible communication cannot offset reality.
Our analysis shows that inflation expectations remained well anchored in both inflation targeting and non-targeting countries, especially at longer horizons (Figure 3). In inflation targeting countries, one-year-ahead expectations rose by 1.2 percentage points on average, compared with 1.1 points in non-targeting peers. The statistically negligible difference suggests that credibility was earned not from the label of inflation targeting itself, but from consistent and transparent policymaking.
This aligns with evidence from Hernández de Cos (2025) and Coibion and Gorodnichenko (2025), who argue that credibility now depends more on actions than on frameworks. Central banks that acted clearly, explained their reasoning, and communicated limits honestly retained public trust, even if inflation temporarily exceeded target.
Figure 3 Change in inflation expectations following the 2022 inflation surge
Figure 3a IT countries
Figure 3b Non-IT countries
Note: The figure illustrates how inflation expectations shifted after the 2022 inflation surge, together with their 90-95% confidence intervals. In both inflation targeting and non-inflation-targeting countries, expectations for the year ahead increased by roughly one percentage point, while longer-term expectations remained stable, indicating that credibility held up across regimes. See Imam and Poghosyan (2025) for details of the empirical analysis.
Institutional strength and macroprudential buffers did not change the story
Could other institutional factors, such as central bank independence or macroprudential regulation, explain the cross-country differences? Not really. Our event-study analysis found no consistent link between legal or operational independence and better inflation performance. In fact, more independent central banks sometimes experienced larger initial inflation spikes, perhaps because they initially ‘looked through’ supply shocks, trusting in anchored expectations before tightening.
Similarly, countries with tighter macroprudential regimes did not experience lower inflation. These instruments, vital for financial stability, proved largely irrelevant against energy and commodity shocks.
Taken together, these findings highlight the limits of institutional design when inflation is driven by global supply disruptions rather than domestic overheating.
No evidence of a ‘softer landing’
If inflation targeting didn’t deliver lower inflation, perhaps it helped achieve a softer landing? Our results do not support this hypothesis either. Output losses during the disinflation phase were broadly similar across regimes. The supposed benefit of a lower ‘sacrifice ratio’ (less output loss per unit of disinflation) did not materialise.
This echoes concerns raised by Stiglitz (2023), who cautioned that aggressive tightening against supply shocks risks unnecessary economic damage without improving inflation outcomes. Indeed, the 2022 experience suggests that mechanical adherence to Taylor-type rules may be insufficient.
Exchange rate flexibility: Theory versus reality
Inflation-targeting central banks are expected to let exchange rates absorb shocks. Yet, our evidence shows that exchange rate movements were broadly similar across inflation targeting and non-targeting countries. In both groups, the real effective exchange rate appreciated modestly following the 2022 shock. This suggests that even inflation targeting central banks may have leaned against excessive currency volatility, defying the textbook orthodoxy.
This underscores a broader point. Practice has already evolved beyond the theory. In an interconnected world with volatile capital flows, few central banks can afford to let currencies move freely without risking financial instability.
Implications: Adapting monetary frameworks for the ‘new inflation’
The 2022 episode challenges the idea that inflation targeting, as currently practised, offers a universal solution in all circumstances. The framework’s success during the ‘Great Moderation’ reflected the dominance of demand-side shocks and stable global supply conditions. Those conditions may no longer hold.
As academics like Nuño et al. (2023) and policymakers from the BIS (Hofmann et al. 2024) to the Bank of England (Greene 2025) have recently argued, the world has entered an era of supply-driven macroeconomics, where geopolitical fragmentation, climate shocks, and energy transition all act as chronic cost pressures. Under these conditions, monetary policy may have difficulties shouldering the burden alone.
Our findings suggest three implications for policy:
Reassess the role of inflation targeting under persistent supply shocks. While the inflation targeting framework continues to offer important benefits, its application may need to adapt to the growing challenges posed by more frequent, global, and persistent supply-side shocks. Central banks may need to tolerate temporary price-level adjustments, and front-loaded tightening does not guarantee improved inflation outcomes.
Anchor credibility through transparency, not rigidity. When facing real-side shocks, explaining trade-offs and acknowledging limits may preserve trust better than overreacting with rate hikes.
Develop integrated policy frameworks. Monetary, fiscal, and structural policies must work together to address supply bottlenecks (see Adrian et al. 2020 and Basu and Gopinath 2024). This point was echoed in recent discussions on ‘monetary-fiscal coordination’ (Blanchard and Pisani-Ferry 2022, Hernández de Cos 2025).
Concluding thoughts
Inflation targeting remains a valuable framework, but not a panacea. It brought discipline and transparency to central banking, and those virtues should not be lost. Yes, the 2022 inflation surge showed that credibility rests less on labels than on coherent action and transparent communication. In a world where inflation stems increasingly from supply disruptions rather than overheating demand, monetary policy must adapt, by acting decisively when expectations risk drifting, but also recognising its limits when price pressures are beyond its control. The next generation of monetary policy frameworks may require greater flexibility with credibility. Coordination with fiscal and structural policies, clear communication of trade-offs, and a readiness to respond pragmatically to evolving shocks will be essential. The discipline of inflation targeting should be preserved, but the dogma abandoned.
