To add to the misery, lower prices swell the real value of debt. This forces firms and households to spend less, but, combined with falling asset prices, it also creates a mountain of bad debt and a risk of bank failures. 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.