I prefer to use the Median Consumer Price Index to the regular CPI. In October, prices rose 0.2%. They have been in this range for months. The more common index, the CPI, reveals a comparable low rate.
As I have been saying for two years, price inflation is low because banks have stashed $1.6 trillion at the Federal Reserve as excess reserves. If bankers ever start lending to the public, the huge increase in the FED’s reserves (2008, 2011–QE2) will create double-digit price inflation. If the lend all of the excess reserves, we will get triple-digit price inflation.
At present, things are like Japan. Nothing indicates a looming rise in prices. This gives room for the FED to inflate even more to keep the economy from falling into recession in an election year.
We are seeing articles in the intellectual press about how it may be time for the FED to inflate. This is always the knee-jerk reaction to looming recession. These articles remind their readers that the FED stands ready to inflate. This reassures readers that the FED remains in control. It tells them that “inflation is our friend” — monetary inflation, not price inflation.
Ever since the end of QE2, the FED has not been inflating. It has been deflating. This “keeps their powder dry.”