BCA Research warns that the threat of deflation in the U.S. is real this time around.

In a research note, the independent research firm points out that annual U.S. headline CPI slipped to zero in December. And, while the core CPI is still positive (up 1.7% on an annual basis), it is falling steadily, the firm says. “The decline in headline inflation is due largely to sharply falling energy (and food) prices,” BCA reports.

“Underlying inflation moves with the business cycle, though it lags economic growth by several quarters. The economy decelerated steadily last year before imploding in the autumn. Thus, core CPI is on track to fall further as economic slack builds,” it says.

“Already, retail prices are falling. The current deflationary threat is much more serious than the previous episode in 2002, given the speed and magnitude of the credit and economic crunch,” it concludes. “Thus, policymakers will need to work hard to anchor inflation expectations in positive territory, and ensure that a deflationary mindset among consumers and businesses does not set in.”