That being said, the average annual rate of change in terms of the CPI during that period was around 0 percent – specifically, it was minus 0.3 percent. However, since the change in the CPI is biased upward, it overstates actual inflation. Therefore, a CPI growth rate of 0 percent means that the economy is actually experiencing deflation.
In addition, since interest rate levels in a deflationary environment tend to be correspondingly low, interest rates are likely to face the zero lower bound when the economy experiences a negative shock. This will limit room for monetary policy responses using short-term interest rates.