Deflation is a significant threat.
When it arises we get falling prices interacting with existing debt loads making debt burdens go up uncontrollably. That combination makes them very difficult to deal with. We've seen in Japan since 1990 this ongoing struggle with the downward forces coming from deflation occasionally going away but always coming back. It's the sort of place that we don't want to go ourselves. Of course it means that if it's a problem elsewhere, since we're part of the global economy, it has impacts on us.
For instance, given the situation we're in here in Canada, it's why we would say here in our monetary policy report that the forecast risks around our plan for inflation are balanced. If there were an upside risk, we would realize that's a lot easier for us to deal with than if there were a downside risk. A downside risk is harder to deal with because we don't have much room to manoeuvre as a monetary policy-maker ,whereas on the upside risk we know exactly what to do. There's an asymmetry in there. That's why policy-makers are so preoccupied with downside risks in this environment.