The New Risk From China: Deflation

Could China, the driver of global inflation in commodities such as crude oil and iron ore, be looking at domestic deflation in 2006?

Deflation effectively took Japan out of the global economy for more than a decade, slowing global growth and increasing global economic volatility. Serious deflation in China has the potential to be a lot more dangerous. At its least damaging, it would flood the world's markets with even cheaper Chinese goods. At the worst it could stall the Chinese economy, a major driver of global growth, and even send the country into one of its periods of instability.

All that from a change in prices? You betcha. ...