After nosediving from March through May as lockdowns devastated US household spending, consumer prices rebounded in the following four months.
Some fear this is the start of a resurgence of inflation. The Federal Reserve Bank of New York's survey of consumer inflation expectations shows a jump from 2.4 per cent to 3 per cent for both one and three years ahead.
If you think serious inflation is coming, you do not believe in the fundamental power of excess global supply to depress prices.
With globalisation, Western technology is combined with cheap Asian labour to produce a vast array of goods and, increasingly, services. But Asian consumers purchase only a fraction of what they produce. China's consumer spending is just 39 per cent of gross domestic product, compared with 68 per cent in the US, resulting in a saving glut that is highly deflationary.
This glut is unlikely to atrophy even if the United States-China trade war intensifies. Western and even Asian companies such as Samsung, Hasbro, Apple and Nintendo are shifting production from China to Vietnam, Pakistan and other Asian countries that have even lower costs and are out of the trade war's line of fire.
It is no surprise that the Federal Reserve, with all its power, has not been able to push the inflation rate to its 2 per cent target and is admitting so by saying it will allow inflation to overshoot its target for a period of time before tightening monetary policy.
To be sure, the Fed is not alone among central banks in failing to spark inflation to an acceptable level.
On a micro level, the pandemic has shown the power of supply and demand to determine prices. With many still house-bound, the cost of food at home last month was up 4.1 per cent from a year earlier, but at nearly deserted schools and workplaces, food costs fell 3.4 per cent, according to the Bureau of Labour Statistics.
The differences in inflation between stay-at-home and out-and-about spending were widespread. The consumer costs of recreational books rose 4.1 per cent last month from a year earlier. Cable and satellite TV fees rose 5 per cent, newspapers cost 5.6 per cent more, medical care was up 4.2 per cent, cleaning products prices climbed 4.5 per cent and bicycle prices jumped 1.3 per cent.
Prices of things consumed away from home plunged, with airline fees dropping 25 per cent, men's suit jackets and coat prices declining 18.7 per cent and women's dress prices tumbling 16.8 per cent, hotel room rates falling 15 per cent and city transportation costs cratering 16.5 per cent.
Supply and demand forces are also revealed in slumping energy prices. With people staying at home and not driving, commuting or flying, demand for crude oil has slumped.
West Texas Intermediate prices have fallen from US$58 per barrel at the beginning of the year to a recent US$41 even though US frackers and conventional oil producers have cut output from 12 million barrels per day to 11 million.
And that is after the earlier drop from US$67 per barrel in early October 2018.
The Consumer Price Index (CPI) overstates inflation in a number of ways, including its accounting for housing. The statistics assume that home owners rent their abodes from themselves, paying market rental rates.
This owner's equivalent rent component is large, 24 per cent of the CPI, and has risen rapidly in recent years as rental costs jumped along with robust demand.
Owner's equivalent rent was up 2.5 per cent last month from a year earlier, but if you stripped that out, CPI edged up just 0.8 per cent instead of the reported 1.4 per cent.
I doubt that many home owners consider rent paid to themselves as part of their cost of living.
President Donald Trump's executive order to reduce prescription drug costs for Medicare recipients to what pharmaceutical companies charge in other countries is highly deflationary. In the past, Americans have essentially paid the cost of developing new drugs when foreign governments buy them closer to marginal costs.
Speciality branded drug costs in the US are up 62 per cent since January 2014, compared with the 10 per cent rise in overall CPI.
At the same time, generic drug costs for Americans have dropped 37 per cent. With the chronic rise in branded pharmaceutical prices, total drugs, 1.5 per cent of the CPI, are up 14 per cent since January 2014.
Price spikes due to the emerging Covid-19 crisis in the spring are being retraced as production and supply chains adjust. Slaughterhouse closings due to infected plant workers failed to stop animals from growing and adding weight. So now chicken wings and prime rib are abundant and cheaper than before the pandemic.
Mr Trump's contraction of Covid-19 has brought home the persistence of the pandemic and the deflation-spawning weak economic growth that lies ahead.
So does the deteriorating household income and employment picture. Personal income dropped 2.7 per cent in August as the extra unemployment insurance benefits expired, and despite the looming election, Washington is yet to pump more money into households.
Although the unemployment rate fell to 7.9 per cent last month from 8.4 per cent in August, that was mainly due to temporary layoffs that became permanent as employers abandoned hopes for a quick recovery.
Walt Disney is axing 28,000 theme park workers who previously were on temporary furlough, and American Airlines and United Airlines are terminating 32,000. In April, 88 per cent of those who lost jobs reported their layoffs were temporary, but only 51 per cent thought so last month, according to the Labour Department.
Those reporting permanent job losses jumped from two million in April to 3.8 million last month.
As the pandemic-sired recession persists into next year, even lower inflation, if not deflation, looms. That would be accompanied by even lower yields on US Treasury securities.
Commodity prices, not just crude oil, would fall. Online retailers would continue to benefit from stay-at-home consumers but the pressure on shopping malls would intensify. Many more heavily leveraged retailers and others with huge debt service would fold.
•The writer is the author of The Age Of Deleveraging: Investment Strategies For A Decade Of Slow Growth And Deflation.