Inflation is a consequence of the conditions that permit economic growth (fractional reserve banking / currency creation, credit extension / investment / speculation).
We could "solve" inflation tomorrow, but we'd also be zeroing growth.
Ergo why the usual target is a small but acceptable bit of inflation. E.g. the US Fed's 2%
I mean, why does the central bank have an official 2% inflation target? They should have an official 0% inflation target - stable prices, not 2% increasing prices. Increasing is not stable!
And people always want more - that's the nature of humanity and why we live in skyscrapers instead of caves. You don't need a society-wide psychological experiment of currency-devaluation to encourage people to spend and invest money.
The problem is that for a real currency you ideally want inflation to match the growth of the economy. Fixed inflation rates (including 0) are decidedly non-optimal.
There are significant stabilization benefits to having a public (and binding) inflation target - all of the large economic entities / sectors like banking, government spending, corporations, etc., become more predictable to each other. For this reason, whatever number is chosen will tend to “stick”, regardless of how the actual number is chosen. Or alternatively: it is optimal to have an inflation target (compared to not having one). Once you are in the “targeted” space, there is a further optimization of deciding what the inflation target should specifically be, but the gains and losses here are small compared to the existence or lack thereof of any target at all.
An alternative way to look at it, is that central banks' inflation target of 2% (and likely much larger that official statistics) means that anything that is naturally scarce goes up in value. You see this in housing, education, healthcare, and anything that can't scale like software gets ever more expensive.
IMO the inflation target should be 0%. I don't agree with arguments about artificially inflating the currency. We don't need to use psychological tricks to make people consume more. We should aim for stable prices. This would reduce the value of housing as an inflation hedge for the common man. Right now it's like a quasi-bank.
Countries with only an inflation target seem to do fine. To be fair, they don't want to undershoot or overshoot the target, which is sort of like having two goals.
The 2% inflation target is for price inflation (the cost of a basket of goods), not monetary inflation (the amount of money). Only monetary inflation is needed to support a growing population, so this does not explain having a target of price inflation.
You don't want to fuck around with inflation because at a certain point it becomes a self-fulfilling prophecy (ie. merchants raise prices pre-emptively just because they internalize inflation at a high steady state).
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