However, this range can be narrowed a bit further by considering the implications of economic theory and empirical evidence about the average inflation rate that produces the best economic outcomes. In particular, the literature on the optimal inflation rate not only bolsters the case for low inflation but also highlights the risks of maintaining an excessively low inflation rate.
The case for low inflation All economists agree that hyperinflations, such as the one in Germany in the 1920s, are particularly damaging due to the resulting distortion of economic incentives and the waste of valuable resources. Even rates of inflation far short of hyperinflation appear detrimental to economic performance, as evidenced by the double-digit inflation rates of the 1970s.