The Consumer Price Index continues to increase at a modest 2 percent. The Producer Price Index, excluding volatile energy and food prices is increasing at 1 percent per year. Importantly, wages have been rising at about 4 percent for this year. Since labor costs account for approximately two-thirds of the cost of goods and services, increasing wage costs without corresponding improvements in productivity make it difficult to lower prices. Productivity increases amounted to 2 percent last year.
Sustained deflation is a monetary event.
Just as sustained inflation requires an increase in the money supply, a significant deflation would need to be supported by a drop in the money supply. During the Great Depression the Federal Reserve did not adopt measures to increase the money supply in the face of a number of bank failures. There is no reason to believe that the current Fed would adopt such a passive policy. It does not seem likely that deflation will be a problem. Since wages are increasing, there is substantial upward pressure on prices.