Although wages and prices tend to move in tandem over long periods, inflation erodes household purchasing power if it is not matched with similar increases in wages, and it eats away the value of households’ savings. So, then, why don’t we and other central banks aim for zero inflation?
There are several technical reasons, but a more fundamental reason is to create a buffer against the opposite of inflation— that is, deflation. Deflation is a general and persistent decline in the level of prices, a phenomenon Americans last experienced during the Great Depression of the 1930s and one that Japan has confronted for most of the past two decades.