Why is a certain level of inflation desired?

Inflation is a sustained increase in the price level. That is, the percentage increase in the price level over a period of time. Normally, we use the Consumer Price Index (CPI) as the indicator of inflation. The CPI measures the weighted average change in prices of a basket of around 700 consumer goods and services. In the UK, the Government has the Bank of England a target of 2% CPI inflation. This is considered low and stable inflation and thus, desirable.
If inflation is too high: Menu costs: it becomes expensive or hard for businesses to set prices May trigger people to bulk buy if they expect prices to continue rising, if people bulk buy this leads to a shift in aggregate demand (AD) which would result in a further increase of prices (never ending cycle)For the Government, high inflation will lead to currency devaluation and a change in the rates of exchange with foreign currencies. Dangers of hyperinflation. Investors will not want to hold an unstable currency. If inflation is too low or negative (deflation):Consumers may hold off from spending as they expect prices to fall. Low demand may lead to excess supply which will eventually be reduced by businesses reducing their production. Reducing supply will often lead firms to fire their employees and thus the unemployment rate may rise. This is likely to be cyclical unemployment and thus will not be of grave concern. Benefits of stable and low inflation (2% CPI): UK goods and services can become more competitive if the UK inflation rate is kept low and stable and the inflation rates of its main trading partners are not. Therefore, competitiveness and its effect on the balance of payments does not exclusively depend on the UK inflation rate but on it relative to those of its trading partners. If the prices of UK goods and services are kept stable and rise only minimally, but in France, high inflation causes prices to rise quickly, french consumers are likely to increase the amount of goods that they import from the UK. Low inflation will enable firms to plan for the future. If firms can easily predict the future as inflation rates are kept low and stable, they will be incentivised to invest. Investing in capital will encourage long term growth as it is likely to make companies more productive. (LRAS shifts to the right)Low inflation will improve the returns of savings as real interest rates will increase. Stable inflation will keep real incomes more stable and this will incentivise workers as they do not experience significant falls in their income power.