GDP growth went down slightly to 0.4% in the final quarter of 2010, after 0.7% in the third quarter and an exceptional second-quarter figure of 2.2%. Even so, the cyclical upswing is still intact. The most recent figure is biased to some extent by the heavy snowfalls and extremely cold weather in December.
If such favourable supplyside developments are especially vigorous, disinflation can even temporarily lead to negative inflation rates. It is therefore very important in such circumstances to keep medium-term inflation expectations well-anchored. A deflationary process, by contrast, is a persistent and self-reinforcing decline in a very broad set of prices. This spiral is propagated by anticipation of prices declining further in the future.