Sir, I could not fail to be struck by the complacency of Prof Jacek Rostowski to the spectre of deflation that now seems to be haunting the three big global economies ("The myths of a deflationary spiral", June 3). I was also surprised that he could seriously raise the threat of inflation in today's disinflationary global environment. It is thinking of this sort that led the Japanese monetary authorities down the policy path of "too little, too late" during the 1990s. Such thinking now runs the risk of impeding the Europeans from a sufficiently pre-emptive policy to avert deflation in Germany.

Prof Rostowski's argument that we are still far from deflation because inflation in the eurozone is 1.9 percent is puzzling. It overlooks the fact that Japan is already in its fourth year of deflation; that consumer prices have been falling in Germany over the past three months; and that, once one adjusts for quality changes, the U.S. is already on the verge of falling prices. The risk of deflation in the world's three biggest economies has to be a threat for the rest of the world.

Perhaps more disconcerting is Prof Rostowski's failure to recognise that the German, Japanese and U.S. economies are at present characterised by large gaps in their output and labour markets. With growth in these economies likely to remain below potential at least for the next few quarters, these output and labour market gaps are bound to grow. This would almost certainly mean further substantial downward pressure on prices in the period ahead until these gaps are closed.

At the current level of inflation in the Group of Three, policymakers are faced with asymmetric costs of policy mistakes. Pursuing too loose a policy does run the risk of somewhat higher inflation. However, there is no serious economic research that would suggest that an inflation rate of, say, 3 percent would be harmful to long-run global prosperity.

By contrast, pursuing too tight a policy does run the risk of leading us down the Japanese path of deflation, with costs that are all too apparent. One can only hope that policymakers in the G3 make the right policy choice.

Desmond Lachman is a resident fellow at AEI.