I don't think he was proposing a flexible inflation rate, but a fixed rate of around 1%. The fact is that every time someone accidentally deletes or loses their wallet, or someone passes away and no one uses their coins, or people abandon wallets with small fractions of coins that they consider worthless, that is all coins coming out of the system. When coins stops being added (again, not that we have to worry about this anytime soon), it could eventually reduce the amount of coins enough that the value of the remaining coins would be too high for average or below average consumers.
Bitcoin can be divided down to 10 nanobitcoins. That's 0.00000001 bitcoins. If we reach a point where 10 nanobitcoins are worth too much to be able to use them for everyday transactions, then I'm sure that either bitcoins will be able to be divided smaller by then, or some other solution will have already been created by the free market.