I'm happy to see this article written, and it will hopefully start to change the attitude of evaluating central bank actions through the lens of 'high inflation bad, low inflation good'.
This whole debate is an unfortunate example of what's called "Partial Equilibrium Reasoning" (as opposed to "General Equilibrium Reasoning"). All things being equal, higher inflation is bad. That's clear. But all things aren't equal, and so appeals to logic about how inflation is a hidden tax on 'the people' and so forth are essentially worthless when applied to real-world situations.
Here's why. One weird thing about inflation is that inflation expectations become a self-fulfilling prophecy, because when people predict inflation, they demand escalating prices on things like 10-year leases and labor contracts, and when they don't predict inflation, they don't.
The situation today, in 2013 America, and not fake-year hypothetical-country in your economics textbooks, is that
inflation expectations are extremely low. They are low because inflation is essentially a by-product of economic expansion, and most people predict that economic expansion will be weak for the foreseeable future.
As it turns out, the reverse of this is true. If people expected the economy to start growing strongly, their inflation expectations would likely rise, which would probably be enough all-on-its-own to cause inflation to rise. Weird, right?
So it turns out that if the economy were to strengthen, one thing you'd notice in the data would be slightly higher inflation. And you'd go, "Well that's no good, but at least the economy is improving!" And you would be looking at a General Equilibrium in which most people are better off even though inflation is slightly higher, because many other things (Nominal Growth, Real Growth, Unemployment, Long-Term Interest Rates for savers) would be moving in the _good_ direction.
This dynamic is why the Fed needs to break the attitude that its job is to keep inflation as low as possible. The worst thing that could happen in the above scenario is for people to think 'Uh oh, inflation is going up, that means the Fed will probably raise interest rates', which would have the (expected) effect of reducing economic growth. But we need growth! And we need to accept that a few percentage points of inflation will be a by-product of that in a healthy economy.
So to summarize, the issue here is not that inflation is good. It's that there is more to this picture than inflation, and that if you have a dogmatic belief that inflation is evil in all situations and should be avoided, you've probably read too much Hayek and it has melted your brain.
[sorry, had to drop a snipe]
