What is a healthy inflation rate?


Quick Answer

The Federal Open Market Committee considers an inflation rate that increases annually by 2 percent to be a healthy indicator of price stability and maximum employment. A small level of inflation reduces the chance of harmful deflation caused by weak economic conditions, according to the Federal Reserve System.

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Full Answer

Controlled inflation fuels activities that stimulate the economy. When inflation rates soar, Federal Reserve policymakers lower interest rates. This creates a demand for commercial bank loans to business owners who create new jobs and influence consumer spending. These factors contribute to a healthy inflation rate that outpaces economic growth by a small amount each year, explains Money Crashers.

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