deflation

and justifiable criticism of the Bank of Japan for not doing enough to end deflation.

As Stephen King, an economist at HSBC, has pointed out, the result might have been a benign deflation that boosted Western living standards.

So much of a typical American's wealth is tied up in bricks that the threat of house- price deflation stokes panic .

Or should we commit the "essentialist" sin of trying to define deflation out of existence?

Then, as he does now, Krugman emphasized the dangers of a Japanese-style deflation, as well as the slow progress in bringing back jobs.

But for now, he said, 'the deflation that some had feared is just not happening. '

If China is no longer exporting deflation, domestic prices in Europe and the US will have to be kept on a rather tighter rein in future.

Japan, worn out by years of deflation, hardly seems ready to lead the way.

It has always been a pretty sound rule of thumb that deflation is good for fixed interest bonds and bad for equities.

The market subject tends to hold forward expectations in time of deflation but backward expectations in time of inflation.

The Bank of Japan forecast two years of deflation and Japan's jobless rate jumped to a four-year high of 4. 8 percent in March.

The central bank's inaction is owed to a particular set of Japanese circumstances as the economy moves out of a decade of deflation.

Mr. Jones urges the BOJ to keep its policy rate close to zero and 'focus on trying to stop deflation. '

Mr Hatoyama's administration, meanwhile, should stop pestering the BoJ about deflation and face up to its own responsibilities.

Such steps had been taken in the US and UK, where the central bank had seen deflation risks, he said.

That said, the point of QE is to ensure moderate inflation in the future, rather than a slide into deflation and recession.

In the last couple of years, when deflation was perceived by many to be a greater threat than inflation, the index was of little value.

The threat of a deflation of the kind that plagued Japan in the 1990s enhances the need for a clearly articulated strategy.

Though the Fed does not expect deflation, last month it did say that "inflation could persist for a time below" optimal levels.

France, once a counterweight to the economics of deflation, seems now to think it has no option but to acquiesce.

The recovery now under way will be feeble: deflation will remain a bigger threat than inflation for at least a year.

To help with fighting deflation, parliament is mulling whether to set the bank an inflation target above its current range of 0-2%.

The zero interest rates and the loose money supply had been used to control Japan's deflation.

If deflation was as serious of a risk as Bernanke says, we would be seeing falling gold prices.

Labor data continued to show monthly job gains, although at a sluggish pace and inflation data does not provide evidence of deflation.

The greatest benefit intervention could bring would be if it signalled that the Bank of Japan was more willing to fight deflation.

FEARS of a general deflation may be receding but in the rich world's housing markets at least, falling prices are still the norm.

Inflation might be a possibility sometime down the line, but the front-and-center threat to the economy is deflation.

Quantitative easing was a tool of monetary policy that the Bank of Japan used to fight deflation in the early 2000s.

Government-bond investors seem to be betting on a combination of recession and deflation.

It is the first time the bank's fan chart, which projects where inflation is likely to lie nine times out of ten, has encompassed deflation.

Normally, and especially now, this is not a concern; a little bit of inflation is better than a little bit of deflation.

He urged the BOJ to keep its policy rate close to zero and "focus on trying to stop deflation. "

Some argue that this combination of deflation-sapped growth and high debt makes Japan next in line for a Greek-style debt crisis.

We have seen no evidence at this point that we are close to a dangerous point with respect to deflation.

First, the clear and present danger, both now and for the next year or two, is not inflation but deflation.

But mostly because, after the mini-inflation scare following the ECB's bailout plans for Europe, we seem to be having a deflation scare.

In 2003, as a Fed governor, he was one of the loudest advocates of using low interest rates to insure against the calamity of deflation.

Who ' s right ? The rich world does not seem to be on the precipice of deflation .

The constant merry-go-round of prime ministers at a time of entrenched deflation is increasingly seen as a national disgrace.

As a consequence, China endured a few years of relatively anemic growth in exports and GDP, and persistent deflation.

That would be highly dangerous. But would it be worse than years of deflation and crucifying unemployment all across southern Europe?

If, as seems plausible, the alternative is years of deflation and depression, some countries might choose to leave.

They do have tools to try to ward off deflation, and should use them. However, they may not be able to live up to expectations.

But their financial foundations have been undermined by debt deflation, even though their lending was more responsible than average.

The SNB said the massive overvaluation of the Swiss franc posed an acute threat to the Swiss economy and carried the risk of deflation.

To cap it all, Japan now faces the return of a ghost it thought it had banished: deflation .

It has bought plenty already (see chart right), and a major goal of the last round, preventing deflation, has been accomplished.

Deflation fears might have receded but were replaced by a spike in food and gasoline priced that has also undermined domestic growth.

What's more, Federal Reserve officials have already signaled that they would be prepared to take action to prevent deflation developing.

Another big factor appeared to be the threat of deflation that loomed over America's economy as consumer prices slipped.

There may be some complacency that because deflation did not spiral downwards then, it will not do so this time.

Despite all the debt problems, bond prices have continued to move higher partly because deflation, not inflation, has been the concern.

But for Europeans and Americans, currently preoccupied by deflation, its problems seem to come from a different world.

With a strengthening currency and domestic deflation, holding JGBs has been a good bet even with ten-year yields down at nearly 1%.

As the great American economist Irving Fisher pointed out almost 80 years ago, deflation, once started, tends to feed on itself.

Warding off deflation, for instance, will demand more unconventional steps from more central banks for longer than many now seem to foresee.

On the possible return to headline deflation, he said: "What is important is the expected inflation rate of the medium to long term. "

Makin: Japan has been a weak economy with sluggish growth and a severe deflation problem.

In other words , you have been a winner this year whether you were betting on inflation or deflation .

The central bank is also sensitive to criticism that this summer it prematurely announced the end of Japan's debilitating era of deflation.

In the aftermath, inflation expectations went negative, implicitly predicting deflation on a scale not seen since the Great Depression.

Our credit is good - at least relatively speaking. That's why inflation still seems the greater danger to me than deflation.

Growth, and a definitive end to long years of deflation, would bring the exchequer fresh revenues.

And Bernanke said he didn't view deflation as a "near term risk to the United States. "

The data could show "that the concerns should be about deflation, not inflation, " he said.

The central bank played down the threat from deflation, a threat it had emphasised earlier this year.

I shall next week talk about the appropriateness of a macroeconomic policy response to deflation .

NEW YORK (Reuters) - U. S. banks are bracing for possible deflation and, if it comes, it will not be pretty for lenders, analysts said.

Mr Tung's government has plenty of things to worry about. But deflation is no longer one of them.

Third, it's deeply tragic that we're having to have this debate all over again, as the world economy slides into deflation and stagnation.

At this point, one might wonder why Japan has struggled with deflation for so long.

if the fed continued to warn about deflation that is growing at a brisk pace , the first bank would not take the unwise move.

But as Paul Abberley, head of fixed income at Aviva Investors, points out, in the short term the risk appears to be deflation.

During the Great Panic of our time, the Fed and its counterparts did whatever it took to prevent depression and deflation.

The one time that there was significant deflation and economic decline was the Great Depression.

As Ajay Kapur of Mirae Asset Management puts it: "In a debt deflation, the currency of the least responsible country benefits. "

the economy is much closer to the point where deflation becomes a real possibility.

Inflation is certainly not a near-term problem, though the press release did not mention deflation.

The political response to deflation is to call for a stronger state.

Back in August, only six stories in the Wall Street Journal, International Herald Tribune and the Times mentioned "deflation" .

Interestingly, Mr Watanabe said on election night that one of its first goals would be to reform the Bank of Japan and end deflation.

Breakeven rates also implied there would be outright deflation over the next five years.

The last deflation scare, after the Internet bubble burst in 2000, turned out to be a false alarm.

First, deflation: clearly, there has been a very aggressive monetary policy response.

'Unfortunately, we won't get it, ' as the risk of deflation is much less now than a year ago.

Next, revenues derived from a company's assets, sometimes known as asset turnover, would also be tempered by deflation.

After a year of sequential producer and consumer price deflation, both the CPI and PPI moved into positive territory in December.

A revised measure of Japan's consumer-price index, to be published soon, is likely to show that deflation is worse than had been thought.

The last time the US experienced an outright and severe deflation was during the Great Depression of the 1930s.

The United States will likely remain mired in Japanese-style economic stagnation and deflation until the power of Wall Street is broken.

In this sense, it would be more accurate to say that China exports inflation rather than deflation.

Deflation is the division of a value variable by an appropriate price index so as to obtain a quantity variable.

It also hands the Bank of England an important weapon in the fight against deflation, through so-called quantitative easing.

It would make no sense for the ECB to put its own reputation for orthodoxy before the ravages of deflation.

Conceding that deflation is a threat, he said any further interest-rate cuts will depend on economic data.

Promising higher taxes to deflation-coshed voters just ahead of an important election would be a strange calculation in any country.

This is not to say that deflation is itself unlikely, but rather that the consequences of deflation are not what Chairman Bernanke expects.

Deflation across the economy is not a problem (yet), but deflation in the housing market is the source of many of our present difficulties.

That would push jobless rates into double digits in much of the rich world and leave many countries perilously close to deflation.

Ba shusong said, the first quarter startup dense deflation policy may include raised bank reserve ratio, interest rate and exchange rate.

The aim of quantitative easing, after all, is to dispel deflation and achieve the Bank's 2 per cent annual inflation target.

But that process , referred to by economists as internal deflation , is political poison .

Even as Tokyo has failed to whip chronic deflation, Japan's economy could be faced with an unexpected hazard: inflation.

To help adjust for two centuries of inflation and even deflation, we also look at a president's worth compared to the economy of his day.

Equipped with such a tool kit, and the readiness to use it if necessary, a central bank can effectively prevent, or end, deflation.

When prices rose in 2006, Japanese policy makers had signaled that deflation appeared to be tamed.

To help borrowers, rates used in long-term financing need to move down dramatically before further asset deflation takes hold.

Anxiety about deflation remains justified: any sign of it would require much bolder measures from the central bank.

Problem is, if heading into deflation, where even falling prices can be too much of a good thing.

To have done so would have risked tipping the deflation-riddled economy into even deeper recession.

Second, regardless of the risks of deflation, the FOMC will do all that it can to ensure continuation of the economic recovery.

Since the Democratic Party of Japan took office last year, it has been pressuring the Bank of Japan to be fiercer in fighting deflation.

The Fed may head off deflation. To put millions of Americans back to work, a lot more needs to be done. Mr. Bernanke can't do it alone.

Any banking system would be challenged by anaemic growth, grinding deflation and interest rates close to zero.

The Bank of Japan maintains near zero interest rates despite severe deflation or fall in prices.

A year ago many economists were fretting about unemployment and deflation.

The purpose of more quantitative easing would be to reduce the chances of Japan-style deflation over the longer term by boosting inflation.

Historically, deflation was a common feature of the American economy, particularly before the establishment of the Federal Reserve.

But if deflation is the result of a deepening economic slump, that's another thing entirely.

Given the choice, erring on the side of inflation would be less catastrophic than erring on the side of deflation.

Despite the deflation of its housing bubble and a severe drought, the kangaroo economy keeps bouncing along.

They may hesitate in the face of political pressure or an explicit decision to err on the side of inflation rather than deflation.

Its state bureaucracy seems likely to curb spending just as exports weaken, and thus risks deflation.

For some, deflation may be as unpleasant as death and taxes. But at the moment, it isn't quite as certain.

But it is only if the recovery stumbles that outright deflation becomes a real concern.

Public fears are growing over deflation, which some economists believe could send Japan into a double-dip recession.

'Deflation isn't just a topic of intellectual curiosity, it's happening, ' says Mr.

The effect of deflation in reducing aggregate demand, known as debt deflation, probably played a significant role in the Great Depression.

And that means that unlike postwar America, which inflated away part of its debt, Greece will see its debt burden worsened by deflation.

It dragged on economic growth and distorted perceptions of the economy, creating a fear of inflation when deflation was the greater danger.

The BOJ itself appears to believe that deflation is not a monetary problem but one of low productivity.

The BOJ was also facing strong pressure from the government to take action to help bring the economy out of deflation.

As a corollary, prices will go down in times of deflation.

Three weeks ago at a luncheon with the Canadian Chamber of Commerce , I spoke on the subject of deflation and its causes .

But it has been hard to justify in a Japan with such feeble growth momentum and one that has never decisively defeated deflation.

The conflict cannot be removed without either a painful and unnecessary domestic deflation or abandoning the undervalued yuan-dollar rate.

The only big difference, so far, has been that the UK has avoided deflation.

Analysts said now the fear may be for a deadly economic problem: deflation, marked by steadily falling prices and economic stagnation.

In that sense, bizarrely for a central bank, it does not appear to believe that deflation is a monetary problem.

But it may have helped to stifle expectations of deflation, the last thing an over-indebted economy needs.

But all this may change. Quantitative easing will end when deflation is a less credible threat.

As long as the money supply is not shrinking there is no way one can have deflation.

The Fed's move is a much-needed attempt to stimulate the American economy and head off deflation here.

This was largely due to plummeting energy and commodity prices, but will do nothing to dispel fears about potential deflation.

Fed chairman Ben Bernanke has affirmed that deflation will not be allowed to occur.

Such mainstream talk about deflation is a sharp reversal from just two months ago, when inflation, not deflation, was the focus of traders.

Things get problematic, though, if deflation happens over a long period and comes to be viewed as the norm.

The greatest burden is on the Bank of Japan. Its efforts to cure deflation over the past 15 years have too often been timid.

Spain, a booming economy until recent years, now has 20 percent unemployment and faces the prospect of years of painful, grinding deflation.

But despite 15 years of deflation, Japan's punishingly high prices still take a toll on its residents' standard of living.

The last big jump in nominal final sales was set off by the Fed's liquidity injection to fend off the false deflation scare in 2002.

She added there was no danger of deflation taking hold.

Fed Chairman Ben Bernanke has said the central bank would do whatever it can to prevent significant deflation in the U. S.

Austerity is unavoidable, but Spain, Portugal, Ireland and others cannot be condemned to semi-permanent deflation.

The Bank's projection now shows a risk that inflation could turn to deflation.

The bursting of these raises the risk of deflation in the long run.

If we had something like the Japanese deflation I'm sure Milton would say: Pour more money into the system.

The economy failed to recover and deflation set in. The result was a persistent combination of weak demand and slowing supply.

Deflation would make debts even bigger in real terms. That would be a disaster .

So far, expectations of inflation remain stable: that sentiment is itself a welcome bulwark against deflation.

We're already closer to outright deflation than at any point since the Great Depression.

Japan is too dependent on exports and its priority should be stimulating domestic demand and ending deflation, not cheapening the yen.

Worse, they don't know what to fear: will it end up in deflation, default, inflation, financial shocks, or all of these?

Deflation is a real possibility in 2009 as a consequence of a global recession.

Greying Japan is burdened with deflation, stagnant growth and a national debt close to 200% of GDP.

He suggests that investors around the world strap in for a wild ride of deflation and inflation.

Gold, which many investors consider an inflation hedge, also can be a useful deflation-fighting tool, analysts say.

If the JPMorgan survey is correct, investors - on average - do not expect serious deflation to emerge from this unknowable mix.

In contrast, the brief burst of American deflation in 2009 was followed by a strong rebound in prices.

Pernicious deflation, though still unlikely, is no longer an idle risk (see article).

I'll just say here that there's no price deflation going on this slump, and there's not even any disinflation going on now.

"The age of importing deflation from China is over, " says Peter Boockvar over at Miller Tabak.

Deflation The rate at which the general level of prices for goods and services is falling. The opposite of inflation.

Also, some investors are worried not about inflation but about deflation and its pernicious effects were the economy to remain stalled.

But Spain no longer has its own money, which means that it can regain competitiveness only through a slow, grinding process of deflation.

The Federal Reserve is pursuing a policy of inflation out of an erroneous fear of deflation.

If bound by the ultimate consumer demand will be a certain trade or production overcapacity , leading to deflation and depression.

The basis for sustained recovery is in place , and canny Fed officials are now alive to the dangers of both deflation and inflation .

But to the extent the yield spread reflects inflation expectations, it suggests deflation is an increasingly likely possibility.

Though Japan remains expensive, signs of deflation can be found in everything from paychecks to the price of electronics.

So the "price" for avoiding deflation may be a bond market meltdown, your quintessential financial crisis.

With deflation and a weaker US dollar, our costs have declined and our competitiveness has risen significantly.

One advantage of deflation strategies is that they tend to be very low-risk (and low-return).

The push into more expensive items comes at a time when inflation has returned to food prices, after a period of deflation.

Under the gold standard, countries used price and wage deflation as a means of adjusting to trade deficits.

The positive: Fears of deflation, and a second economic downturn, have receded.

We are at, or near, deflation at the moment. It may even get worse before it gets better.

While wage deflation isn't Ashworth's "central scenario, " he says it's dangerous enough to bear watching.

For one thing, Japan is in danger of slipping back into deflation as the price of imported commodities falls.

Domestic deflation means China's real interest rates are the highest of any big economy.

Just as there is good deflation and bad deflation, there can be good inflation and bad inflation.

It was only a few years ago that the Chinese government along with policymakers outside China worried about deflation.

Avoiding deflation is vital, but failing to address the deficit would be the worst kind of complacency.

Worse, house-price deflation is only the first element of a quadruple whammy that is thumping American consumers.

In the long run, deflation is more harmful than inflation, for the former may cause economic collapse in extreme cases.

Jean-Pierre Roth said the SNB would act again to prevent the risk of deflation.

"So-called deflation can be beneficial in the short term as it makes things cheaper for people who are struggling, " Ellis says.

That represents three years of expected deflation.

Good luck to those who think any government could endure six or more years of deflation.

This time, I suspect, the result will ultimately not be deflation but unexpectedly high inflation, though probably many years hence.

For the moment Spain has only just sunk into outright price deflation.

The maximum point of deflation has already passed , as this occurred while there was spare capacity in raw material output world wide .

Are there good deflations , bad deflations, or is deflation just a red flag that should make us more cautious?

Amid continuing credit woes, a protracted spell of deflation would be particularly unwelcome.

In January, he had forecast that gold could drop at least 40 percent from its peak value because of deflation and over-ownership.

In a more recent note, Professor Roubini predicts a combination of stagnation and deflation*.

The worst is not behind us: 2009 will be a painful year of a global recession, deflation and bankruptcies.

Though Japan remains expensive, signs of deflation can be found throughout the economy.

Last summer, it was slowing down and the bond market was braced for outright Japanese-style deflation.

When recession or deflation looms, government bonds are relatively unaffected but equities suffer because profits are likely to fall.

Take deflation, for instance. By any reckoning it has had a corrosive effect on consumption, debt and investment in the past decade.

With a pegged dollar, a cheap mainland market and government rebates, economists see no end in sight to deflation.

Although worries about Japan-style deflation in the US are overblown, deflationary pressures are more worrisome than inflation.

This increases the risk that outright deflation will kick in and lengthen the balance sheet recovery period by years and not quarters.

If recovery is not in sight and deflation threatens, the clamour for more monetary stimulus will be hard to resist.

Cleland likened its expansion and contraction to the inflation and deflation of a balloon.

Some economists argue that central banks' determination to avoid deflation could have the opposite effect.

A deflation of the property bubble plaguing these cities will be accompanied by a material slowdown in demand for commodities.

This was so obviously part of the same process that there seems no harm in labelling the whole process a major deflation.

With growth slowing and the quantity of money stagnant, deflation is a greater risk than runaway inflation.

Fisher was adamant that ending deflation required abandoning the gold standard, and repeatedly implored Franklin Roosevelt to do so.

Maybe deflation would be a nice thing for people with secure, steady incomes.

Excess capacity in the manufacturing sector, meantime, suggests deflation could be about more than just cheaper food bills.

Central banks may soon resort to their most powerful weapons against deflation: the printing press and the "helicopter drop" of money.

The third option is a rapid deflation in prices and wages, known as an "internal devaluation" .

But inflation is not a cheap solution to high public debt and the debt-deflation problems of the private sector.

Thousands of banks failed, a devastating deflation set in, output plunged by a third and unemployment rose to 25%.

Among the 18 forecasters surveyed monthly by The Economist, none expects deflation in any big economy next year save Japan.

Finally, we'll discuss the special problems associated with a falling price level, or deflation.

However, according to the American scholar David Weinstein, the official numbers understate Japanese deflation by several percentage points.

For policy makers, the key is whether things improve enough to fend off deflation.

In the case of Bitcoins, some think that decreasing the rate of money creation over time will entail deflation.

Financial expenditure helps restrain the rise of price in time of inflation but reverse the fall of CPI in time of deflation.

Deflation, if it becomes entrenched, is more dangerous than most forms of inflation.

Japan's experience suggests economies can function perfectly well with entrenched deflation, something history confirms.

Printing money and transferring it directly to people's bank accounts is a perfectly sensible way of tackling the risk of deflation.

The deflation we fear is a large slump in the price level and a permanent shift in price expectations.

If it lapses into deflation, again the dollar should suffer more.

Nevertheless, by reining in its money supply, Japan has not only avoided inflation but has actually experienced deflation.

At present this policy also has a great sphere of action, if well developed, controlling the deflation, promoting economic growth.

Under the situation of global economic deflation, South Korea's economic performance is relatively better than other countries.

The price of avoiding deflation in the rich world today may be a bust in the emerging world tomorrow.

As stocks tumbled over the summer, many investors feared the US could suffer a prolonged bout of Japanese-style deflation.

In a debt-laden economy such as Britain's, deflation is the last thing anyone would want, as it increases the real weight of the burden.

It is also difficult to see deflation taking hold when central banks are being so hyperactive.

One indication of the excess supply is the decline in core inflation to close to 1 per cent in the US and the eurozone: deflation beckons.

It may also entrench deflation. A shortage of workers might push up wage costs, but companies will be loth to invest in new factories.

The still-challenging outlook for exports and continued deflation suggest that these assurances are credible for the medium-term.

Yet the dangers of deflation will lurk as long as the economy has so much slack.