Based on this analysis we should expect to see inflation in 2012-2013. I would add to these points rents will remain constrained in the near term, putting further downward pressure on CPI.
Kalish provided several reasons to expect inflation risks to be low over the intermediate term of less than five years:
Excess capacity. Kalish says that any of a number of factors point to high levels of excess capacity in the economy right now -- everything from the unemployment rate to industrial capacity utilization rates to commercial real-estate vacancy rates. Those factors put "downward pressure on the inflation rate," he points out.
Cyclical factors. Kalish points out that "following every recession in the postwar period, the inflation rate has fallen."
Slower debt growth. The federal government's total debt may have mushroomed over the last couple of years, but this has been more than counterbalanced by deleveraging in the private sector. "Historically," Kalish points out, "when debt growth has been below trend, the inflation rate has declined."
High real interest rates. Nominal interest rates may be low, but real interest rates (the difference between long-term Treasury yields and the consumer price index) are at abnormally high levels right now, according to Kalish. High real interest rates "tend to discourage the use of debt and, therefore, excess consumption and investment, which puts downward pressure on the inflation rate."
Why inflation could stay low for awhile Mark Hulbert