So it is clear why deflation evokes such dread. It is equally clear, for the same reason, that the term should be used with care. Unfortunately, it isn't. People often talk of deflation when what they really mean is recession. A world recession next year is possible, as the crisis that started last year in Asia spreads elsewhere.
Genuine deflation comes in two main forms.
It arises from the productivity gains delivered by technological advances, or from increased competition thanks to economic liberalisation. As higher productivity reduces prices, real incomes, demand and hence production can all rise. If it is to be truly worrying, there must be evidence of deflation of this second sort. The first two are largely irrelevant, and the third is misleading. Start with commodity prices.