Asia in a Low Inflation Environment: Facts, Orgins, and Implications for Policy

Dramatic declines in inflation rates across Asia and falling prices in some countries have recently heightened fears of deflation. This paper aims to shed light on this issue by reviewing the cross-country evidence in Asia and highlighting key observations about recent price developments in the region. In light of the recent surge in popular discussion about deflation, some of which are not based on sound economic reasoning, the paper attempts to filter out the arguments by providing a clear and coherent understanding of falling price, how they occur, what are the causes, and how do they affect the economy. In doing so, it hopes to provide a basis for a focused and coherent discussion of deflation (or the risk of one) in Asia.