Implicit and Explicit inflation

[TheSstudios]

I was reading the economics IB syllabus, and in the macroeconomic section they specified to answer the following question:

Explain that central banks of certain countries, rather than focusing on the maintenance of both full employment and a low rate of inflation, are guided in their monetary policy by the objective to achieve an explicit or implicit inflation rate target

So, my question is what is implicit and explicit inflation.

Also, can you give me tips to answer the question above.

Thank you all,

Regards,

TheSstudios

[mnmib]

Hey,

I haven't seen what you wrote before too much but caught a glimpse of it once. I think this has to do with the central bank stating the target inflation rate (explicit inflation). This would mean that for instance, Country X would have an inflation of 10% and will say publicly that the inflation rate will be dropped to 2% using high interest rates to decrease Aggregate Demand, by decreasing the money supply. This target acts as an anchor reducing inflationary pressure and inflationary expectations.

If people have faith in the Central Bank's ability to hold down inflation rates (as they have explicitly stated them) then they will not expect further inflation, and thus will not make demands for increases in wages any higher than the expected rate of inflation, which will keep the costs of labour from rising excessively. (If the people did not have faith, then inflation would keep increasing because workers through trade unions can demand higher wages, thus increasing the costs of production and the aggregate supply curve will shift to the left, causing even more inflation).

The difference between an implicit target rate of inflation and an explicit target rate of inflation is that an implicit target rate means an informal target rate which is not stated and that the central banks choose.

Both implicit and explicit rates reduce inflationary expectations.

I'm not too familiar with this yet but this is how I would go about answering the question