But to the extent that this kind of deflation is a symptom of a problem of weak demand, it is more that weakness which should worry us than the deflation per se. Imagine two scenarios. The first is one where inflation has been, and is expected to remain, at a steady 3 per cent. Everyone's behaviour is fully adjusted to that expectation.
Then, as a result of a period of temporary demand weakness, inflation falls to 1 per cent. The second is one where inflation has been, and is expected to remain, at a steady 1 per cent, with everyone's behaviour fully adjusted to that expectation.