While the drop in oil prices will push inflation down in the near term, the bigger disinflationary risk could stem from the effect of the coronavirus on economic activity. Indeed, we said after the global financial crisis that the world was now one recession from deflation. For now, the weakness of supply as well as demand should limit any disinflationary effects. But there is a risk that demand falls far further. And with interest rates already low, it might not even take an especially deep recession to get trapped in deflation.
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