DEFLATION is no longer a myth, nor is it an issue confined to the developed world. Seven economies in Asia (ex-Japan) have already been experiencing deflation in producer prices for much of the past three years.
In recent months, these deflationary pressures have intensified and are transmitting to consumer prices and Gross Domestic Product (GDP) deflator. Consumer prices have declined in Singapore, Taiwan and Thailand, and growth in consumer prices in China and Korea are below 1 per cent on a year-on-year basis.
Deflationary pressures have arisen due to both local and global factors. Weak domestic demand and excess capacity in the region have led to a loss of corporate pricing power.
Moreover,...
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