Does inflation always rise when the American economy recovers? In an article in the Financial Times of 26th June Mr. Alan Greenspan, former chairman of the US Federal Reserve, wrote an article under the title ‘Inflation is the big threat to sustained recovery’. But – as a survey of the historical evidence shows, press here – there are no examples in US post-war history of significant rises in inflation when the level of output is 3% or more beneath trend. As US output is currently over 7% beneath trend, Mr. Greenspan is seeing ghosts. Inflation is not a threat to recovery. Instead a recovery is essential to prevent deflation.