Our Brush With Deflation

Thinking more about the Stephen Roach piece I blogged last Friday, I think there are a couple more points I should make clear. Firstly my quibble relates to the deflation story, not its reality. We are certainly running extraordinarily close to a global deflation scenario, despite the fact that, ironically, a short term rise in fuel costs might seem to be leading us in the opposite direction. Secondly, the oil price spike is significant. Of course if the price continues at current levels (or, god forbid, above them), the shock can knock the global economy back into recession. Stephen's argument on this count are cogent and compelling. And the weakest will feel the pain first, again as I tried to flag in last week's post on the Brazil dilemna. I, however, remain unconvinced that, with or without the petrol shock, we are heading anywhere especially attractive economically speaking, and for the reasons I spelt out in the original blog.