When inflation is low, the general price level remains relatively stable. High, volatile inflation causes uncertainty, however, and has harmful economic and social implications. This uncertainty is costly in a number of ways; for instance, consumers’ price sensitivity becomes muted, thereby diminishing the constraint provided by competition. High, variable inflation can also make it more difficult for firms to make appropriate investment decisions. Studies indicate also that inflation can lead to reduced GDP growth over the long term.
Adverse effects of inflation
Why is the inflation target 2½%?
Monetary policy and price stability