Inflation generally is a Bad Thing. Especially high inflation and stagflation can have dreadful consequences. However deflation too is just as bad. So what's ideal? Perfect stability? Is moderate inflation (say 2-5%) actually that bad? Especially if it can be justifiably explained as a temporary phenomenon so it doesn't start push cycles of ever-inflating wages and more inflation. Moderate inflation can be a case where two wrongs make a right.

While in an ideal world a free economy should equilibrise to the right levels so that if prices are too high they come down, in the real world one of the biggest flaws is that simply doesn't happen easily. I'm no Keynesian [I think Keynes worked when government was as small as his days, but was not intended to be how his name is used now], but one think Keynes said that is definitely right is that prices and wages are "sticky downwards". Businesses have no incentive to cut prices when their costs come down normally unless their competitors do the same, while employees do not want to accept a cut in their wages.

Its far more possible and easy however to freeze prices. Management wage costs when our business were young got too high, so we never reduced them but did implement freezes. Inflation has helped reduce these costs. The government in the UK has today announced a third consecutive year of wage freezes for its employees - wages increased too far too fast in the good times leaving us a massive budget deficit that exploded in the recession, and they have not changed but by the end of the third year real wages will have come down by 10%. I don't think a 10% pay cut could ever have been agreed or enforced at any stage, but freezing costs and passing time allows it to happen.

Similiarly with debt, our debt burdens can become too high. If interest can be kept lower than inflation (a big if) then it allows a reduction in the real burden of that debt. My mortgage interest rate, like government bonds, is lower than the rate of inflation. As long as it can stay that way, as a taxpayer and a homeowner I'm happy.

I don't think inflation should be allowed to run out of control. Major inflation is definitely a bad thing. However if instead of 1% or 2% its 3% or 4% its not the end of the world. It may even be a good thing.