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.
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.