Financial Times FT.com

Bank probes forces behind deflation

By Daniel Pimlott

Published: March 16 2009 02:22 | Last updated: March 16 2009 02:22

The factors that cause deflation – defined as a sustained drop in prices – may carry higher economic costs than deflation itself but the wise application of monetary policy can mitigate the effects, according to new research in Monday’s Bank of England quarterly bulletin.

“If policy responds sufficiently promptly and decisively, employing the full range of conventional and unconventional monetary policy instruments, deflationary episodes should be short-lived,” the article concludes.

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