FACTBOX - What is deflation and why is it feared?

(Reuters) - Central bankers and international institutions have in recent weeks said the risk of deflation is rising, even though it is still small.

Such talk of deflation has reminded financial markets of Japan's decade-long struggle to escape an economic malaise dating from the mid-1990s that saw persistent declines in prices stifle official attempts to kick-start economic growth.

The Organisation for Economic Cooperation and Development on Thursday forecast deflation would return to Japan in 2009, and on Wednesday, Bank of England governor Mervyn King said he could not discount the possibility of deflation in the UK.

Central bankers in the euro zone and the United States have played down the risk of sustained deflation in their economies in recent days.

Here are some facts on deflation:

* WHAT IS DEFLATION?

-- Deflation is a prolonged and widespread decline in prices that causes consumers and businesses to curb spending as they wait for prices to fall further. It is the opposite of inflation, when prices rise, and should not be confused with disinflation, which merely describes a slowdown in the rate of inflation.

-- Deflation occurs when an economy's annual headline inflation indicator -- typically the consumer price index -- enters negative territory.

* WHY IS IT A PROBLEM?