B.  Nominal rigidities  Another long-standing explanation for why low inflation might result in a deterioration in macroeconomic performance is the possible existence of nominal wage rigidities – specifically, a reluctance to reduce nominal wages. Relative wage movements are important signals and incentives that guide labor resources to their most highly valued uses.
When inflation is very low, achieving this variation in relative real wages depends on some wages falling. If nominal wage cuts are rare, efficiency in the allocation of resources may decline, and as a result, output might be lower at price stability than if there were some low rate of inflation.