Many experts are growing concerned about the inflationary implications of the massive fiscal and monetary stimulus that has been implemented around the globe to end recession.
But the first worry is deflation, many point out.
In a recent speech, World Bank Chief Economist Justin Lin explained that a failure to eliminate excess capacity worldwide may spark a “deflationary spiral” that would prolong the financial crisis and create more corporate failures, Bloomberg reports.
“Once excess capacity appears, the economy gets trapped in a vicious cycle,” he said.
Deflation has been a concern in Japan for some time. The Bank of Japan and the International Monetary Fund predict two years of price declines in Japan, The Wall Street Journal reports.
Japan went through virulent deflation during 1990s amid a collapse in its banking and real estate sectors.
Prices are even falling in fast-growing economies such as India and China, The Journal points out.
In the first half of the year, China's consumer price index dropped 1.1 percent from a year ago, and in India, prices have slid for more than a month.
As for Europe, in the 16-nation euro zone, prices dipped 0.1 percent in June from last year.
Some worry about deflation in the U.S. too.
"With unemployment already substantial and likely to rise further, the downward pressure on wages and prices should continue and could intensify," San Francisco Federal Reserve President Janet Yellen said in a speech cited by Reuters.
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