US rates: deflation party’s end game

Inflation is about to return to the US. The headline rate is set to rise by about three percentage points come the end of 2009. Investors may be too confident that the Federal Reserve chairman, Ben Bernanke, and his colleagues at the US central bank won’t care. Last year oil led US prices downward – by 0.8%, 1.7% and 0.8% in the last three months of 2008. A year later, the base of comparison is lower. That’s enough to reverse the sign on the rate of change in the price index: from -1.5% to +1.5...