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The economy is even flirting with deflation.
Prices still flirt with deflation (see chart).
What policy options are available to deal with deflation?
With deflation still ravaging the Chinese economy, stores are full of unsold appliances.
But as Mr. Gittler of Bank of America said, "You can't buy a sofa with deflation".
Government figures released Monday provided further evidence that Japan's long battle with deflation may be ending.
Indeed, according to Dresdner Kleinwort Wasserstein, corporate America is already living with deflation.
Japan, for instance, is grappling with deflation concerns as it tries to emerge from a recession.
Mr Flaherty and Stephen Poloz, the central-bank governor, are more concerned with deflation than inflation.
Like other countries, Britain has been flirting with deflation for months because of lower oil prices.
He said the bank would maintain its monetary policy until there were signs that Japan's battle with deflation was over.
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