DESPITE all my (continuing) concerns about sustainability, the economic data are looking remarkably good as the UK general election gets ever closer.

Some may put this down to the Government's fabled 'long-term economic plan'. Others of a more sceptical mind-set may suggest that it is more a matter of fortuitous timing. Whatever, it is certainly true that employment is increasing, unemployment is still falling and now we have further signs of an increase in real wages.

On top of these unambiguously positive data, comes the news that the rate of inflation has dipped sharply and that we may well be heading into negative inflation territory - deflation to us economists. The Chancellor has greeted the marked decline in inflation as good news for all. Certainly this decline in inflation to next to nothing has been the major cause of real wages rising; purchasing power has increased. However, impending deflation does pose real risks, and certainly should not be greeted without a significant degree of caution.

Just to remind, the UK's inflation target is not for 2% per annum or less. It is to get as close to 2% as possible. To quote from the Bank of England website: - "The remit is not to achieve the lowest possible inflation rate. Inflation below the target of 2% is judged to be just as bad as inflation above the target. The inflation target is therefore symmetrical." The Governor has to write an open letter to the Chancellor when inflation falls below the target range of 15 to 3%, just as is required when it rises too high. It is only in 2015 that the 'apology' letters for too low inflation have had to be written.

Domestically there are three main key reasons for concern about deflation. First is the potential impact of deferred consumption. If we consumers anticipate a period of falling prices, then we may decide to delay purchases of major items in the expectation that we will be able to buy them even cheaper in a few months' time. If this impact is of substance, then it can reduce momentum in our domestic economy. Second there is the impact on debt. When inflation is distinctly positive it has the effect - beneficial to debtors (of whom there are very many given mortgage debt as well as credit card, etc. debt) - of steadily reducing debt in real terms, easing pressures. With very low or negative inflation real debt is stable or even rising. The effect of stable debt will again be felt via consumption, which may trend down as savings tend to rise in response to concerns about debt.

The third cause for concern is how to tackle deflation in the context of an ultra -low interest rate environment. The guiding principles are clear. When inflation is too high and/or rising monetary and/or fiscal policy should be tightened. When inflation is too low and/or falling policy should be eased. But how could policy be loosened during 2015? Interest rates are essentially at their floor and I do not believe that negative rates are a possibility. We have done the quantitative easing deed and I do not see scope for further, substantial, tranches. Nor do I see any prospect of the Chancellor agreeing to loosen fiscal policy - fiscal austerity remains the order of the day and is likely to stay in place even with a change in government.

To many economists these concerns are minor, because they do not believe that low or negative inflation in the UK will prove anything but a passing anomaly. They note that 'core prices' - stripping out energy costs - are rising at 1.4% and that this figure looks to be gently easing upwards. They further note that the major cause of low inflation has been the decline in oil and other energy prices, and that this decline is not continuing. The impact on inflation of the oil price fall will soon drop out of the Consumer Price Index. (It would be necessary for oil prices to be falling on a continuous basis to have a continuing downward impact on inflation.) Hence, the optimists suggest, inflation may venture into negative territory over late Spring and Summer, but will not become embedded and hence will neither have the negative effects on consumption referred to above nor, blessed relief, require corrective policy action.

I hope, and suspect, that they are right. But nevertheless would advocate great caution. We have seen elsewhere - particularly in Japan for two or three decades - the adverse impact of embedded deflation and the difficulty of extracting oneself from the deflation quagmire once trapped. And I would note that at the back end of 2014 UK household consumption growth was already slowing. Further, the deflation risk is not solely a UK cause for concern. The risk is also there at the core of Europe and in China. In the Eurozone the risk is particularly severe, because deflation is occurring alongside stagnation or a return to recession. That is a most unwelcome, toxic, mix.

With prices falling in our core Eurozone markets, and that Chinese momentum lost to the world economy, the deflation-related risk in the UK is exacerbated. The markets are now looking for a UK rate rise later this year, rather than delayed into 2016. No thank you; let us see off our deflation risk first, check that we can expect relatively strong growth despite the global problems, and only then see a case for considering a rate rise - as the inflation risks return to the upside rather than the potentially traumatic downside.

Jeremy Peat is visiting professor at the University of Strathclyde International Public Policy Institute