An epic battle between the forces of inflation and deflation has been waging since 2008. Although no knockout punch has been delivered, inflation still has the upper hand.
Analysts who have been predicting deflation for years -- even decades -- continue to be proven wrong. Their counterparts in the inflation camp have correctly anticipated interventions by the Federal Reserve. Whenever a deflationary collapse threatens to unfold, the Federal Reserve rolls out massive doses of monetary stimulus.
Yet every time an outbreak of raging consumer price inflation seems imminent, weak demand in the global economy dampens the inflationary pressures. That brings out deflationists who rehash their deflation "just around the corner" forecasts.
The monetary definition of inflation is an increase in the supply of money and credit relative to goods and services in the economy. By that definition, inflation is running rampant. Since 2008, central banks created more than $12 trillion in new cash.
High rates of monetary inflation don't always translate directly into real-world inflation in the form of higher prices. Although gold and silver have advanced substantially in the past 10 years, commodity and consumer prices have yet to really take off in the manner that inflation hawks warned they would. Instead, the monetary inflation created by the Fed has largely accumulated inside the banking system and financial markets -- with little wealth trickling down to ordinary wage earners.
Here's how Barron's columnist Randall Forsyth recently described the situation: "central bankers' conjuring, for all of the paper wealth it has created, has produced much less than expected in terms of jobs and output ... whatever inflation has occurred has been mainly in asset prices, which has failed to produce the general benefit predicted by monetary officials."
The government-published consumer price index has lagged behind the Fed's 2% target in recent years. As has been repeatedly documented, the government's self-serving CPI number understates the sorts of price increases many working Americans face. Average residential rents and health care costs, for example, are outpacing the 1.5% "official" inflation rate.
That aside, even the unreliable CPI calculation shows that consumer costs remain on a steady upward trend.
For all the talk of deflation in recent years, it's remarkably absent from the actual data. When deflation made a brief attempt to take hold in late 2008, the dip in price levels that occurred only brought the CPI back to its primary ascending trend line.