We have been targeting 2 per cent total CPI inflation, in recognition of the benefits of a slightly positive inflation rate in facilitating economic adjustments, and of the potential operational challenges associated with a lower target rate.1  1  The lower the inflation target, the more likely it is that some nominal wages will occasionally need to decline to facilitate economic adjustment.
If workers are reluctant to accept these declines, the process of real  BIS central bankers’ speeches  1  Targeting an inflation rate lower than 2 per cent is intuitively appealing, since achieving the target still causes the price level to double roughly every 35 years, which may contribute to money illusion and more generally complicate inter-temporal decision-making.