VoxEU Column

Why central banks should aim for a positive inflation target

The rate of inflation has a bearing on the relative price of individual products and therefore on demand for those products. Using new micro price data, this column investigates how high the optimal inflation rate must be to prevent relative product demand from being distorted. In contrast to a common claim, it finds that the optimal rate is not zero for a large part of the euro area, but is, in fact, clearly in positive territory.