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Deflation threatens to worsen recession: IMF chief

Published on 01/04/2009

MADRID – Deflation poses a risk in Europe and the United States and could exacerbate the recession and complicate recovery, the head of the International Monetary Fund said in an interview published Wednesday.

"In the short-term, the risk is deflation," Dominique Strauss-Kahn said in comments published in Spanish by El Pais newspaper, in answer to a question on the risk of a fall in prices in Europe and the United States.

"Deflation is a risk that has not been apparent for a long time. If we really enter into a situation of deflation it would complicate the recession and the recovery later on," he said.

"The paradox is that once the crisis is over, we could again face a risk of inflation."

Several countries appear set to be hit by deflation, a prolonged drop in prices considered bad for economic activity.

The IMF said in mid-March there appeared to be a high risk of deflation in the United States and Japan, and a lower risk in Europe.

Prices in Spain dropped in the month of March year-on-year for the first time since statistics began in 1961.

In Ireland, prices fell in January and February.

According to the Standard and Poor’s financial research company, Britain, Ireland and Spain are the countries most threatened by deflation in Europe.

AFP / Expatica