Fortunately, that trend has now reversed. Consider a standard measure of problem loans: the ratio of noncurrent and delinquent loans to bank capital and the allowance for loan loss. In the first quarter of 2009, that ratio rose for all loans to 24 percent for the median Minnesota bank, double the 25-year median level of 12 percent.
The risks of deflation, defined as generalised price declines that trigger a negative spiral of self-fulfilling expectations, have largely disappeared. At the same time, underlying inflation has not shown a convincing upward trend – domestic cost pressures remain subdued and recent increases in global price pressures have yet to filter through.