What some people view as "inflation" is nothing more than the difference between nominal and real prices, the following is cut from The automatic earth and looks at nominal vs real prices.


   To get "high" inflation, the economy needs to be running at near or full capacity or said another way, demand growth exceeds the productive capacity growth, we are currently at around 67% capacity in the US economy, and that spare capacity is a overhang that is going to make it very very hard to generate aggegrate inflation any time soon, just look at the Japanese economy for the last 18 years to provide a clue as to the almost impossible task of reflating an economy once the "DEBT HANGOVER" becomes intrenched.

 "Nominal prices typically rise during inflationary times as there is more money available to support higher prices, but prices need not rise evenly, and some prices may fall, depending on other factors. In real terms the picture would be quite different, as increases would be smaller and decreases would larger. When nominal prices fall despite inflation, it means that the price in real terms is plummeting. For instance, global wage arbitrage allowed the price of imported goods to fall drastically in real terms. In deflationary times, nominal prices typically fall across the board, but prices need not fall in real terms, and, in cases of scarcity, may well rise."

  "The easy availability of cheap credit has conveyed a considerable amount of price support - price support that will be progressively withdrawn as credit tightens. Prices will fall, but the collapse of credit will cause purchasing power to fall faster than price, leading to the apparent paradox of nominally cheaper goods being less affordable in the future than nominally more expensive goods are today. Moreover, there are likely to be substantial changes in relative prices between essentials and non-essentials. As a much larger percentage of a much smaller money supply will be chasing essentials such as food and energy, there will be relative price support for those items. In other words, while everything is becoming less affordable due to the collapse of purchasing power, essentials such a food and energy will be the least affordable of all, whatever the nominal price. People commonly speak of unaffordable prices as a result of inflation, but do not realize that deflation can have the same effect, only much more abruptly."