Inflationary pressures are broadening out beyond the food and energy sectors almost everywhere, with businesses throughout the economy passing on higher energy, transportation and labour costs by raising prices. (OECD 2022)

With the global economic cycle turning downwards and monetary tightening by most of the major central banks increasingly taking effect, headline inflation is projected to peak in the current quarter in most major economies, and to decline in the fourth quarter and throughout 2023 in most G20 countries. (OECD 2022)

The Bank of England's Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 21 September 2022, the MPC voted to increase Bank Rate by 0.5 percentage points, to 2.25%. (BoE, 2022)

Raising interest rates makes borrowing more expensive and - it is hoped - this can encourage people to save more. As a result, they will buy fewer things and prices will stop rising as fast. But when things like rising energy prices worldwide cause inflation, there is a limit as to how effective UK interest rate rises can be in slowing inflation. (BBC, 2022)

Main Question: 

Explain the meaning of inflation and why it is considered to be an important objective for the government. Apply relevant economic analysis to evaluate whether monetary policy is the best method that can be used by the central bank to reduce inflation

 LINK the discussion paragraph back to the question, to clarify how the point is relevant and how it contributes to the overall answer

 Evaluate which policy is more effective: monetary policy, fiscal policy, or supply-side policy?