Not since the 1950's have we had deflation in America. Right now 'headline' inflation is running greater than negative 1% (thats deflation folks) and looks to accelerate downward.
Will we have consistent deflation for a long period of time? I don't know but lets examine some of the factors that go into inflation.
I am focusing on 3 charts; all show data on a year over year basis to remove seasonal fluctuations.
While headline inflation is decidedly negative right now, the 'core' inflation rate is still positive. 'Core inflation' excludes energy and food prices from the calculations. Some may argue one still needs to eat and drive your car to work so why look at a number that excludes these important parts of daily life? Since energy and food prices are highly volatile the theory is they will balance out over time and policy decisions (like raising short term interest rates) should not be based upon such volatile factors.
As you can see we still have inflation within the 'core' but the rate is sloping downwards. If / when this drops below zero and we have 'core' deflation it will hopefully make the news! Core inflation has not dropped below zero in the entire time it has been sampled. (since 1957)
Housing costs are also part of the inflation figure and as you can guess it is also trending downwards and may also start going negative in the near future. Housing inflation has not been negative in the entire data set as well. (since 1967)
Most Americans alive today have not had to deal with chronic deflation and I believe we are culturally programmed to only think in inflationairy terms. Life may get very interesting if the US consumer changes their mindset to one of chronic deflation instead of inflation.
WSJ: Worldwide deflation
Bloomberg: High real interest rates attracting interest
Source: Federal Reserve