Implications for public policy Since the Fed uses the CPI as an indicator of price inflation, a more accurate index should make anti-inflationary monetary policy more effective. The public will have a better indicator to check how well the Fed is doing its job. The effect on policy is not likely to be large, however, because the Fed already takes account of the best available estimate of the remaining biases in the published data. On the other hand, when inflation was higher, modest errors were less important since it was always appropriate to make policy with a view to reducing inflation. But now that we are closer to zero inflation, an accurate measure is more important, especially if policymakers wish to avoid a situation where actual inflation is negative.
Some economists argue that negative inflation is undesirable in the long run.
If it is difficult to reduce nominal wages, then it may not be possible to lower individual workers' real wages if prices are not rising. This may mean that it is difficult to provide appropriate incentives to move unneeded workers into other lines of work where they are more useful. Similarly, declining prices may cause the real value of debts to rise, which could cause some otherwise sound businesses to fail. Finally, if we want our tax and transfer system to be invariant to inflation, an accurate CPI is essential, so that the task of adjusting tax and transfer payments to price changes can be done quickly, easily, and without undue dispute. Changes to this index are inevitable as the BLS strives to maintain an accurate measure of inflation in our dynamic economy.