I've been reading a blog written by a deflationist. This individual has been writing about deflation for a couple years. He has convinced me that we are experiencing deflation not inflation. Of course he defines inflation and deflation as the expansion and contraction of the money supply. He follows the Austrian method that focuses on money supply rather than prices.
He has detailed several reasons why prices and CPI are a poor indicator. One, what factors influence price. How much does each factor influence price? Different factors affect different items and so on. For instance, I don't think anyone on this board would deny that oil and food are rising for reasons other than inflation and a falling dollar. What percentage of the price increase is due to supply, demand, weather, politics and falling dollar no one knows. So it is ridiculous to suggest that food, energy and other consumer price increases are a worthwhile barometer of anything.
Second, CPI and government inflation data focuses on a small portion of items in our economy. What about housing? How can you claim price increases when home values are down so much. Billions have been written off by banks. Do these price changes not matter to inflation index? The increases in food and energy pale in comparison to the loses in housing and commercial real estate.
Check out these articles from Mish's Global Economic Trend Analysis. This blog is excellent. You may not agree with him, but the read is worthwhile none the less.
Mish's Global Economic Trend Analysis: Bernanke's Hogwash Mish's Global Economic Trend Analysis: Attitudes Lead, The CPI Lags Mish's Global Economic Trend Analysis: Now Presenting: Deflation!