Logically, subject to one or two important assumptions, there must exist a path that avoids both these unpalatable alternatives – deflation and inflation. Finding that path is the challenge for policymakers around the world over the next several years. Faced with a large downturn like this, it was the right thing to do to allow budgets to go into deficit.
Over time, though, there will obviously need to be fiscal consolidation. This will be easiest where the fiscal measures taken were temporary: it would be a matter mainly of not repeating the measures. Where more permanent measures were enacted, it will be more of a hard grind to get onto the path of sustainability.