Threat of deflation lingering in euro-zone

Inflation is likely to remain very low in most advanced economies during the coming year or two, despite a gradual acceleration of economic growth and continued ultra-loose monetary policy. The one partial exception is the US, where we expect core inflation to exceed the Fed’s long-term goal of 2% by early next year as spare capacity in the economy dwindles. But inflation in the UK will be lower, and in much of the euro-zone there is still a risk of deflation. Even in Japan, which now has the highest headline inflation of any G7 country, the underlying rate is still very low.