The Bank for International Settlements (BIS) today warned that there was a risk that deflation could spread from Japan to other advanced economies if growth remained weak for a long time. "Despite the widespread assumption that growth will recover in a low inflation environment, economies still appear to be vulnerable to various imbalances. These raise the possibility of a more protracted period of weakness, a scenario in which deflation could conceivably spread beyond Asian borders," the BIS said in its annual report.
The US Federal Reserve last week again voiced concerns about the possibility of "an unwelcome substantial fall in inflation" and Fed policymakers have discussed the "remote possibility" of deflation, but the European Central Bank has said it sees no risk of deflation in the eurozone. However, the BIS said the risk of deflation should not be ignored. "The successful taming of inflation has increased the possibility that most advanced industrial economies might be one deep recession away from experiencing deflation," it said.//www.fxcentre.com