Raise that bar another notch.

Expectations on Wall Street have gotten so high that when January's

Consumer Price Index

report came in with only a trace of inflation, bonds barely budged.

The

Labor Department

announced Wednesday morning that total CPI and the core CPI, which excludes the volatile food and energy sectors, were up a mere 0.1% last month. Economist estimates were for total CPI and core CPI to rise 0.3% and 0.2% respectively.

After initially moving from 113.25 to 114.03, March futures of the 30-year Treasury bond quickly fell back below their opening level to 113.20.

Why the ho-hum reaction? Perhaps because economists discounted the low level of inflation, saying that transportation costs, which declined 0.2% after rising 0.6% in December, kept the overall CPI artificially low. In particular, they pointed to fare wars among domestic airlines that produced a 3.2% drop in the price of a ticket.

Also adding to the lackluster bond market were unsubstantiated rumors circulating that George Soros had sold a billion dollars worth of bonds early in the day.

Meanwhile, some economists and traders were just skeptical about whether the Goldilocks economy could continue.

"We're not going to see a continuation of these astounding numbers," says Richard B. Berner, chief economist at

Mellon Bank

in Pittsburgh, adding that the market has already factored in a lot of good news.

In separate news, the U.S. trade deficit increased $10.3 billion in December, according to the

Commerce Department

, a figure slightly above analysts' expectations of $10 billion. This change widened the trade gap for the year to $114.2 billion.

Activity on bond trading floors for the rest of the week should be even more tame. Economists and traders are downplaying Thursday's housing starts number on the theory that winter is erratic. No major economic data will be released Friday.

The next big event on every economist's calendar is

Federal Reserve Chairman Alan Greenspan's

speech before the

Senate

next Wednesday.

Thursday's numbers

:

Mortgage Bankers Association Application Volume Indexes

(8:30 a.m. EST): The group will release its purchase and refinance indices for the week ended Feb. 13.

Initial jobless claims

(8:30 a.m. EST): The Labor Department will announce the number of jobless claims for the week ended Feb. 15. Economists are expecting 320,000 first-time claims compared with 309,000 for the previous week.

Housing starts

(8:30 a.m. EST): Economists are expecting January housing starts to number 1.4 million, up from 1.3 million in December.

Building permits

(8:30 a.m. EST): The consensus estimates for January are 1.4 million versus 1.42 million in December.

Fed speech

(7:30 p.m. EST):

Atlanta Fed

President Jack Guynn will address an Atlanta federal economics conference in Coral Gables, Fla.

By Avi Stieglitz

astieglitz@thestreet.com