This indicator measures the government’s commitment to sound monetary policy.
Relationship to Growth & Poverty Reduction
Research shows that high levels of inflation are detrimental to long-run growth. High inflation creates an environment of risk and uncertainty, drives down the rate of investment, and is often associated with distorted relative prices and tax incentives. Inflation can also hinder financial market development and create incentives for corruption. In addition, inflation often has a direct negative impact on the poor. When inflation is associated with swings in relative prices, it usually erodes real wages and distorts consumption decisions.
This indicator measures the most recent one-year change in consumer prices. The indicator reflects average annual percentage change for the year, not end-of-period data.
In keeping with economic research findings, MCC considers countries with inflation below 15 to be passing this indicator.