UPDATE 1-Bank of Canada's Poloz eyeing global deflationary risk

Fri Apr 11, 2014 5:24pm EDT
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* Poloz says watching deflation risk but encouraged by improving outlook

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By Louise Egan

WASHINGTON, April 11 (Reuters) - Policymakers are closely watching the risk of deflation in several advanced economies but they are encouraged by signs of a continuing improvements in the economic outlook, Bank of Canada Governor Stephen Poloz said on Friday.

While not talking specifically about Canada, where inflation has been below the central bank's 2 percent target for nearly two years, Poloz's comments shed some light on his thinking about a top concern domestically ahead of the bank's next interest rate decision on Wednesday.

"The risk of deflation is something that we all carry around when inflation is as low as it is," Poloz told reporters after a meeting of finance ministers and central bank governors from the Group of 20 leading economies.

"It's not that we fear deflation in the next moment. None of the real conditions that produce outright deflation, where all prices and wages are declining at the same time ... are present," he said.

"What we worry about is, when deflation is especially low, if there were another shock that came along that put more downward pressure on the economy, that would introduce the risk of a deflationary outcome."   Continued...