DEFLATION DELUSION

Nevertheless, the Federal Reserve and many commentators have dismissed concerns about inflation. Instead, much of the economic mainstream continues to call for massive government spending programs to rescue the economy from the specter of "deflation" or a "liquidity trap."

But with consumer prices rising for almost a full year, it's hard to see worrying about deflation as anything but a delusion.

A pattern has developed this year: The Bureau of Labor Statistics issues its report on the Consumer Price Index (CPI) for the previous month, and the headlines blare: "Prices Rise Modestly, But Inflation Outlook Still Tame." The irony is that for most months, the price rise was not modest -- being well above a 2% annualized rate.

All along, one of the key facts to "prove" inflation was still not a problem was the year-over-year decline in consumer prices. In other words, the CPI in a given month was lower than it had been in the same month the previous year.

For example, in October consumer prices were about 0.3% higher than they were in September, but even so they were still about 0.2% lower than they had been back in October 2008. The average reader of the financial press would get the impression that prices are always bouncing around somewhat, but with unemployment so high the trend has been downward. Yet this isn't true. Consumer prices have been on an upward trend all year...
Read the rest... Bob Murphy ad MarketWAtch.com

-flynn