If you just read the headlines, you would be under the impression that we were once again tottering on the brink of a deflationary cliff. Darn that Fed for raising the discount rate! CNBC says for example: "Core Consumer Prices Show First Drop in 28 Years"

(The actual text of the article was fairly neutral, I should concede.)

Here's the actual situation: The raw CPI level rose 0.3% from December 2009 to January 2010. If that one-month change were to occur 11 more times, the CPI would rise a total of 4.2% for the year. Not Weimar Germany, but hardly a lack of "price pressures."

Now all this talk about "the first fall in core CPI since December 1982" is referring to this fact: If you first seasonally adjust the data (which suppresses price hikes because prices typically rise in the first quarter of the year), and then strip out energy and food prices, then that (largely meaningless) number fell from December 2009 to January 2010.

For what it's worth, the raw CPI rose 2.6% from January 2009 to January 2010. Obviously my warnings about runaway price inflation have yet to come to fruition, but the deflationist camp is hardly sitting pretty either.

And remember, we have been conditioned to think that 2009 was a period of dancing with deflation, when even the official price index has been rising at a decent clip. With this mindset, the Fed won't "have" to take aggressive action to drain away excess reserves until the genie is not only out of the bottle, but has built a condo and renewed his driver's license.