Imagine if we defined price stability as one percent: that would mean we would have hardly any scope to reduce the interest rate and intervene if there was a downturn. Our margin of safety would then be too small. If you look at it from a long-term perspective, there are very good reasons to aim for close to two percent.
It’s legitimate to have this debate. But anyone who thinks we should be happy with zero percent inflation because we will otherwise destabilise the financial system is underestimating the importance of aiming for close to two percent inflation. But in the meantime the dangers of cheap money for the financial system are here, aren’t they?