Is there still a serious deflationary threat?

With the recovery in the global economy gaining momentum and conditions in many financial markets getting back to normal, the threat of deflation would seem to have receded. We agree that a full-blown debt-deflation crisis is not the most likely scenario. However, the risk is still much greater than many people realise and, given the potential severity of such an outcome, we would argue that it is still the biggest threat faced by the global economy. It is certainly much greater than the risk of runaway inflation.