The system for handling lost coins is that remaining coins are highly divisible.  When a wallet is lost, there may be 100 BTC fewer available for trading, but the remaining bitcoins can be split into smaller pieces to handle remaining transactions.  Even if all but 1 BTC was lost, the currency would continue to function as a viable medium of exchange because that 1 coin could be divided into small enough pieces to facilitate meaningful transactions.

In the United States, about .725% of the coin supply is lost each year.  Since all Bitcoin transactions are public, it should be easy to calculate how many bitcoins are lost annually and the markets will adjust accordingly.

Trading unpredictable central bank inflation for predictable annual coin loss seems like a good design decision to me.