In late 2011, a dramatic shift down in inflation was most welcome, after CPI inflation had been running so hot from August 2010 through September 2011. In October, the change in CPI came in at -0.1%, with both November and December flat.
This recent downshifting can be attributed to some short term market price changes, a recent tightening by the Fed since July, along with the relative recent attractiveness of the dollar compared to other currencies over the past four-and-a-half months, thereby giving at least a short-term boost to money demand.
At the same time, 2011 and longer term monetary policy need to put in perspective.
From December 2010 to December 2011, CPI inflation ran at 3.0%. That was the highest inflation rate since 2007. And compared to the Dec-Dec average over the previous decade, CPI inflation in 2011 ran 50 percent faster: 2.0% average for 2001-2010 compared to 3.0% for 2011.
The pick up in inflation - again, particularly from August 2010 to September 2011 - was not surprising given the unprecedented expansion of the monetary base by the Federal Reserve for three years from September 2008 to July 2011.
Where might things be headed on inflation?
Under the most worrisome scenario, recent tame months on the inflation represent a breather, and the Fed's loose money for three years will lead to, once again, inflation accelerating.
In contrast, the positive outlook would have to include continued dollar demand and the Fed miraculously getting the timing absolutely right on a more substantive tightening of policy.
Hmmm, which seems more likely? Personally, I'm reluctant to count on policy miracles.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.