Few things spook central bankers like the word deflation. The D-word strikes fear into their hearts because, once unleashed, it can rampage out of control, destroying economies and societies. The deflationary panic peaked in the summer, with analysts warning that the West faced a Japanese-style "lost decade", but in recent weeks it has subsided.
So has the global economy been saved from a deflationary death spiral and, if so, exactly how dangerous is the cure?
At first glance, deflation doesn't sound too life-threatening. Deflation means prices fall, stuff gets cheaper and your money goes further. What's not to like? China has been exporting wage and price deflation to the developed world for years, and we all had a very enjoyable consumer boom on the back of it.
The problem is that deflation means regular, sustained falls in the price of goods and services, which creates the expectation that prices will continue to fall in future. This soon has a corrosive effect on consumers and businesses.
If prices are falling, why make non-essential purchases today when you can pick them up cheaper tomorrow? A bigger car, a better house, cheaper clothes, a larger TV; all things come to those who wait. But the effect on the economy is deadly. As consumers bide their time and curb their spending, businesses sell fewer goods and are forced to slash wages or lay off workers. As unemployment rises, consumers spend even less, businesses pay their workers less ... and, well, you get the picture.
This negative spiral is hard to reverse because it is self-reinforcing. And deflation is particularly cruel to those in debt because their borrowings rise in real terms. Which is, of course, terrible news for the over-leveraged West, not to mention poor old Japan.
Japan has already lost two decades to deflation, during which the Nikkei Index has plunged from a peak of 38,957 in 1989 to just 9,588 today, and is in danger of mislaying a third. To lose one decade might be regarded as a misfortune, to lose two looks like carelessness, while three looks like game over.
This shows how hard it is to dislodge deflation once it has got its feet under the table. When Japan was a global export powerhouse, the West was urged to follow its lead. Not now.
In the UK, the Bank of England is so worried about deflation that its deputy governor, Charles Bean, recently urged savers to go on a spending spree, blowing their money down at the shops rather than keeping it tucked safely away on deposit. That's a measure of how desperate the Bank of England is to keep the high street ticking over.
Michael Small, a partner at the UAE-based financial consultants VSM Consultancy, says the West still has to foot the bill for its "economic stupidity" of allowing property and other assets to spiral out of control during the boom.
Governments have desperately tried to avoid the inevitable reckoning. "The necessary action to recalibrate excess-ridden economies is being deferred indefinitely at an ever greater cost, which is government debt," says Mr Small. "That will eventually lead to higher taxes, which has the same net result as low wages."
Ireland is already suffering dramatic wage and asset-price deflation, and others are set to follow. "The same fate now awaits Spain, Greece, Portugal, the UK and US, leading to falls in share and property prices and a prolonged period of wage deflation," Mr Small says.
Unlike Ireland, the US and UK can do something about their plight because they retain control over their own currencies. But it won't be pretty.
Both are gearing up for a second round of quantitative easing, known as QE2, in a bid to blow deflation out of the water and hoist the rival flag of inflation.
After its September meeting, the US Federal Reserve admitted that the country's inflation was too low and at odds with "its mandate to promote maximum employment and price stability".
Unemployment in the US is still rising, property prices are falling, and consumers are down in the dumps - despite all that fiscal and monetary stimulus. Inflation is just 1.1 per cent and the Fed would like to hike that to about 2 per cent.
Cue a second blitz of bond purchases as early as next month, possibly as much as US$1 trillion (Dh3.67tn), to inject inflation back into the system. The UK is widely expected to extend its own £200 billion (Dh1.1tn) blitz.
The US will do anything to defeat deflation, says Rod Davidson, the head of fixed income at fund manager Alliance Trust Asset Management. "President Barack Obama is hitting it with every fiscal and monetary weapon in his armoury. The US is paranoid about deflation and you only have to look at equity returns in Japan over the past 20 years to see why."
Given all the fiscal and monetary stimulus, the West should be suffering rampant inflation, says Dan Dowding, the chief executive for the Middle East and Asia at the Dubai-based IFAs Killik & Co. "The money supply in the West has tripled in a year," he says. "The US dollar and sterling have depreciated significantly, which should increase inflation in these two countries. Food, energy and commodity prices are rising. And logic suggests that inflation is the only way authorities will get out of their debt hole. But deflation is still a threat due to high unemployment, high debt and a weak housing market."
The US will get what it wants in the end, says Clem Chambers, the founder of ADVFN.com, a stocks and shares website. "Any fool can make inflation," Mr Chambers says. "In fact, fools do make inflation, just look at Robert Mugabe [the president of Zimbabwe]. You simply have to loosen the supply of money. Governments in the West are actively encouraging inflation right now, they're just not telling anybody. It is the only way they can repay their massive debts. If inflation is 7 per cent a year, you can halve your debt in 10 years. It also brings house prices back into line, but without a painful crash."
There is another, possibly more worrying, alternative. "We could get deflation and inflation at the same time," says Steve O'Hanlon, the head of fixed income at ACPI Investment Managers. "During the boom, we saw massive property price inflation combined with imported deflation from China. Now that is going into reverse. Property prices are falling, but food, energy and commodity prices are rising, and stronger Asian currencies are pushing up the cost of imports generally."
This could prove the worst of all possible worlds: bad news for savers, who will see their money eroded in real terms, and bad news for borrowers as the value of their assets shrinks.
James Thomas, the regional director at Acuma Wealth Management in Dubai, says the emirate is already experiencing a combination of inflation and deflation. "Rents are falling significantly, but fuel, food and other everyday items have increased. Hopefully one will offset the other, with rental decreases putting money into people's pockets, which they can then spend elsewhere, supporting the economy."
If the first bout of QE was about sinking deflation, recapitalising the banks and saving the global economy, QE2 has a different objective. It is about actively stoking inflation and sinking the dollar and sterling in a bid to make US and UK exports more affordable.
They aren't the only ones at it. China, Brazil, Mexico, Japan, Singapore, Russia and others have been interfering in the foreign-exchange markets in a desperate attempt to crush their own currencies.
Some call it a race to the bottom. A more accurate description may be survival of the weakest. If it spirals into an all-out trade war, everybody will be a loser.
But QE2 has created one outright winner: global stock markets. Lifted by the prospect of a fresh injection of liquidity, Wall Street enjoyed its best September in 71 years and stock markets around the world joined in the fun.
QE2 could continue to drive stock markets for the rest of the year, creating opportunities for brave investors.
The danger is that it will lead to another equity bubble, particularly in emerging economies, whose stock markets are mopping up much of this surplus liquidity, and could eventually be flooded with the stuff.
We live in uncertain times, so think carefully before chasing the latest leg of the stock market recovery, Mr O'Hanlon says. "This isn't the time to take chances with your capital, especially if you plan to retire in the next five or 10 years."
In their desperate bid to defeat deflation, western central bankers are playing a high-risk game. If they overdo the stimulus, they won't be having nightmares about the D-word any longer. Instead, they will be haunted by the H-word. Hyperinflation.