I've been an avid student of inflation since 1973, when the oil embargo kicked off a decade that included three recessions and four years of double digit inflation (1974 and 1979-1981). Peanut butter became a staple in our household diet.

The top chart is one I update monthly with the announcement of the Consumer Price Index. I even include a second version based on the alternate CPI from the ShadowStats.com website, which preserves the Bureau of Labor Statistics pre-1982 calculation method. (The next inflation update will be May 19th; see my April commentary here).

In recent years, however, official inflation has been quite moderate. In fact, the 2009 average rate was negative (-0.34%) for the first time since 1955 (-0.28%). We have to go back to 1949 for deeper deflation (-0.95%).

On the other hand, many costs have continued to rise dramatically (check your health-care insurance over the past five years or the cost of college tuition). The ShadowStats.com alternate CPI puts the 2009 rate of inflation at 7.03%.

Adding to the confusion is the perennial debate between the inflationists, who expect severe inflation as an outcome of the skyrocketing Federal debt, and debt deflationists, who point to the opposite aftermath during the two decades following the Nikkei bubble, which triggered even more aggressive government debt assumption. For a scholarly perspective on cycles of inflation and deflation, see Bob Bronson's Revealing Supercycles: BAAC and Economic.

So which is it — inflation or deflation? Market technician Chris Kimble (second chart) suggests we're getting a bit of both:

At heart, I'm drawn toward market fundamentals, but there's plenty of evidence that the market can ignore fundamentals for very long periods.