Given the harm caused by high inflation, the recent decline in inflation rates throughout Asia is clearly welcome. Certainly the low inflation environment has allowed monetary policy across the region to be much more supportive of growth than otherwise. It is somewhat ironic, therefore, that price declines in a number of countries and very low inflation in others have raised concern that inflation is in fact too low. Moreover, low inflation against the background of rapid growth and surging asset prices makes monetary policy more complicated since overheating pressures may manifest themselves in emerging financial imbalances rather than obvious inflationary pressures. It is, therefore, important to gain a deeper understanding of the factors behind low inflation and how it relates to the state of the banking system in order to determine the appropriate policy response going forward