This time last year the Institute for Public Policy Research (IPPR) made a compelling case for keeping interest rates at their historic lows, arguing that although the recovery looked to be on an increasingly sure footing, we were some way off generating inflation through domestic wage pressure, and that if anything, the global growth slowdown meant inflation looked set to fall below 1% in the coming year.

That view now looks prescient, to say the least. Consumer price inflation spent another month at near-zero levels in November, with prices by the CPI measure a mere 0.1% higher on average than a year ago. This makes it a virtual certainty that 2015 will be a year of zero or near-zero consumer price inflation: the first time this will have happened in the CPI’s 27-year history.

This is not just a UK phenomenon: consumer prices have stalled across developed countries, primarily as a result of steep falls in the price of oil over the last 18 months.

Oil price falls feed through to inflation in a relatively simple and predictable way. Initially fuel and energy prices respond, which has the immediate effect of pushing down on both producer and consumer prices. But as reductions in these costs feed through to production, transportation and other input costs, a broader range of goods and services becomes cheaper. This ‘good’ deflation feels much like a tax cut to consumers, and as long as the economy is growing, it is unlikely to turn into a deflationary spiral.

So given that the UK is currently growing at around 2.3%, does this mean deflation shouldn’t concern us as we head into 2016?

It’s worth reminding ourselves why falling prices are such a damaging phenomenon. When a deflation sets in, the real value of debt increases, making it more difficult for borrowers to service their debts. And the UK has a lot of borrowers: the household debt-to-income ratio is currently 135% - lower than the pre-crisis peak (155%) but far above its historical average. Indebted households without asset wealth are particularly vulnerable to deflationary dynamics, since they don’t get the offsetting gains of rising real asset prices: in the UK, 70% of tenants (i.e. those without property investments) hold at least one form of unsecured debt, and around one in eight of them report that their debt repayments are a heavy burden.

Although it is indeed unlikely, deflation could take hold even in the current context if consumers were convinced that a wide range of products were set to get cheaper, and if they were willing and able to postpone consumption in anticipation of those price falls. That could be enough to cause demand to slow sharply, which would lead firms to cut wages to stay afloat. The key early warning signs are therefore downturns in wages and consumer spending.

There is tentative evidence that consumers have been more reluctant to spend of late: after a slow October, retail sales decreased 0.4% on the year in November. But it is the wage data that give the biggest clue as to how inflation expectations have changed. Nominal wage growth has slowed sharply over the past six months: regular pay (excluding bonuses) grew by only 2% in the three months to October compared with a year earlier, down from 2.9% in the three months to July.

In month-on-month terms, real wage growth has now been flat for seven months. Although we are still some way away from nominal wage falls, and slowing wage growth can be caused by a number of factors, the data does at this point suggest that expectations are adjusting to a low-inflation environment.

A key condition for a deflation to set in is for price falls to be broad based. At its worst, Japan’s deflation affected 70% of all consumer prices. In this respect the data for the UK are encouraging. Recent price falls are almost entirely down to falling goods prices, while the price of services continues to rise strongly. Since service prices tend be more closely tied to domestic demand, this is a reassuring indication that we are some way from a deflationary spiral – although if we were in the early stages of a deflation, we would see it in goods prices first.

Looking ahead to 2016, the Bank of England’s monetary policy committee should be poised to loosen policy further should price falls show any signs of becoming entrenched. And given how important income growth is for staying out of deflationary territory,George Osborne has another good reason (if one were needed) to avoid any tax or welfare measures that would have the effect of cutting incomes – particularly for those at the bottom of the income distribution, who tend to spend all that they receive – in the coming year.