To talk about imminently increasing inflation in the United States today is to meet with policy makers’ derision. The prevailing thinking among mainstream macroeconomists is straightforward on this point — while unemployment is rising, inflation must be low or even falling. If anything, according to Ben Bernanke and his cohort, we should fear deflation, i.e., falling wages and prices, a damaging characteristic of the Great Depression in the 1930s.
But remember, macroeconomic orthodoxy has taken a beating in the past two years. Anyone who claimed subprime mortgages and their ilk could not constitute a macroeconomic threat now has a credibility issue; this includes at least some of our most senior policy thinkers.