2% is good, anything over 3% is not good, anything over 4% is bad, 5% and higher is really bad. Hope that clears things up for you.
But the bigger issue is that inflation is generally distributed much more evenly than wage increases. Very few employers offer a COLA that is automatic, so wages almost always trail inflationary pressure.
So it's not that "2% is good", but more that "2% is the best buffer we've decided above the <0% super scary threshold"
There are many other reasons a positive inflation rate is better than substantially near 0. One common complaint about inflation is that erodes real wages because nominal wages are sticky, but this is actually a good thing. It gives businesses room to breathe during downturns without cutting nominal wages or having to cut staff. Positive inflation also forces cash into productive uses which helps monetary policy because it keeps the actaul money supply more stable.
It's even more interesting to contrast this from 1971 onward. 1971 is when Bretton Woods ended and the government was given a free hand to start 'printing money' so to speak, and inflation became the new policy. Since then the CPI has increased by more than 800 points, 1600% more than our baseline. And it's only increasing faster now - to the point that these numbers I'm giving are already rather outdated.
[1] - https://www.minneapolisfed.org/about-us/monetary-policy/infl...
Yes, the economy expanded greatly over this period, but you have to separate inflation from many other causes such as innovation, increasing labor supply, better education, increases in the amount of investment. I think its pretty clear that the economy wouldve fared much better in the 1800-1950 period if the government was partaking in monetary policy that focused on small but positive inflation.
I don't think that's just a coincidence either. Economic issues in the US used to foreshadow booms to come, which makes sense in many ways as it's the ending of one generation of businesses and the start of another. By contrast in the US prices have increased by 30% over almost the same length of time as the 'long depression', and continue going up up and away. It'd be nonsensical to call it the long inflation or whatever because it's only slightly off the normal. 2% 'planned' inflation over the same 7 year period is a 15% increase in prices. And businesses going under? No, everything's huge now, and so everything's too big to fail. The government has taken on the responsibility of perpetually propping up failing businesses, forever inhibiting competition in the process.
And there's no boom waiting at the end, in no small part because there is no end. Each economic issue we face, which are becoming increasingly regular, just further magnifies the divides in society. The wealthy have sufficient assets and resources to turn this into profit, in no small part by dumping excesses of money into inflation resistant assets, but the middle and lower classes have no such option and so mostly just lose either badly or very badly. This [1] site lays out a bunch of the data since 1971 (when the dollar became completely unbacked following the end of Bretton Woods) and impossible not to see it as an enormous inflection point for all sorts of nasty stuff.
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I suspect if we hadn't had the tech boom kicking off fairly shortly after 1971, driving in a decades long unprecedented economic boom, that this experiment would have long since reached its climatic failure. It only works with infinite exponential growth. For some time we had that. Now we not only no longer do, but also are seeing a fertility collapse at the same time. There's gonna be some fireworks.
Stash paper cash in your safe and sure, you lose purchasing power. Use fiat money the way it's designed to be used, instead of using it like gold coins, and it works better.
If currency doesn't devalue then stuffing it under a mattress looks like a reasonable alternative to investing. If we hit deflation you can receive gains for "free" and borrowed money becomes more expensive over time. Neither of which our economic system is setup to handle.
We punish people who hoard cash by devaluing it thus encouraging them to put the money to work.
An offhand remark made by New Zealand's Finance Minister, Roger Douglas, during a 1988 television interview.
The broad idea is you want a number low enough that people don't price inflation expectations into day-to-day pricing but not so low that a hiccup causes deflation.
The empirical evidence around inflation persistence is a bit all over the place, but broadly suggests people start daily indexing between 2 and 5%. When that starts to happen, restraining inflation without causing a depression becomes incredibly hard, because people will actively countermand policy moves.