Almost all of the big swings in the consumer price index in recent years comes from volatile energy prices. Abstracting from this, as was the case with the producer price index released yesterday, we see that most other prices continue to rise. The Cleveland Fed's Median CPI throws out all the outliers (the things with big increases or decreases); it shows that prices are up 2.7% in the past year, and in recent months have been running at an annualized rate of about 2% or so. There's been some moderation in the rate of increase in nonenergy prices, but nothing like the deflation that you've heard so much about.
As I said yesterday, I think it is significant that nonenergy prices are still rising despite the substantial slump in demand that has occurred. That's a tribute to expansive monetary policy, a weak dollar, and strong gains in gold. It flies in the face of the widespread belief that significant economic results in deflation. It suggests that Treasury yields are too low, and the market's fears of a downward demand and price spiral are unfounded.
One last point: the non-seasonally adjusted CPI, which is used as the inflation adjustment for TIPS, rose by 0.44% percent in January. This is perfectly in line with the seasonal tendencies of the CPI, and compares favorably to the 0.5% increase in this same measure in January 2008. Most importantly, it means that TIPS holders will receive a positive inflation adjustment in the month of March, and that is a welcome change from negative adjustments for the previous five months.