WASHINGTON – The risk of a destabilizing bout of deflation has grown as the United States and other countries struggle with weak economic recoveries and lingering financial problems.
That assessment, contained in a new International Monetary Fund report, comes as the Federal Reserve gears up to pump more money into the U.S. economy to strengthen the recovery and nip any deflationary forces from taking hold. Japan flooded its stagnant economy with money Tuesday in a bid to fight deflation.
Deflation is a widespread drop in prices of goods and services, in the value of homes and stocks, and in wages. It crimps spending by people and businesses and makes it harder for them to pay down debts. All that hurts the economy.
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