Coronavirus and the Risk of Deflation

Christensen, Jens H. E.; Gamble, James M.; Zhu, Simon

Journal Article

Coronavirus and the Risk of Deflation

Abstract: The pandemic caused by COVID-19 represents an unprecedented negative shock to the global economy that is likely to severely depress economic activity in the near term. Could the crisis also put substantial downward pressure on price inflation? One way to assess the potential risk to the inflation outlook is by analyzing prices of standard and inflation-indexed government bonds. The probability of declining price levels—or deflation—among four major countries within the next year indicates that the perceived risk remains muted, despite the recent economic turmoil.

Keywords: covid-19; deflation; coronavirus; economic activity;