Much of the argument that has been made in support of the case for impending inflation has been based on the notion that global government monetary and fiscal stimulus will inevitably lead to higher prices across the board. Higher oil prices, higher stock prices, and higher housing prices. All of the liquidity which governments are currently trying to force into the economic system must find a home, and where else historically has that money gone? On the surface it makes sense. Some would say too much sense. Even if this hypothesis is correct, which I, too, suspect it is, the question is how and when does it start to manifest itself in the way of rising prices?

In looking at the global inflationary landscape, the data continue to show anything but an environment of rising prices. Economies globally have actually been seeing a slowdown in consumer and producer price increases globally. Germany saw the smallest increase in its PPI in 22 years, China's CPI and PPI are both strongly negative, and the U.S. has seen its smallest increase in PPI in 59 years. Meanwhile, emerging economies globally which have historically faced higher rates of inflation have event joined the falling prices parade, as evidenced by the Philippines' rate of inflation hitting a 14-month low. In other words, if inflation is out there, it is belied by the data.

In fact, from a price perspective, we are experiencing a global disinflation. There is little data to support the notion that prices globally are currently falling, but if the fall in commodity prices over the past year is sustained and these decreases are passed along in the form of lower petrol, grain and other prices, it is possible the decrease in CPI growth could turn into an actual decline in prices. This would lend credence to the notion that the increasing debt burden is inherently deflationary and that the overhang of credit losses experienced during the past 18 months are beyond the scope of any monetary or fiscal prescriptions. On the other hand, with all of the monetary aggregates still growing at nearly 10% and Fed purchases of T-bonds and MBS looming, inflation's bite should be expected to eventually appear.

So while the current landscape is defined by slowing price increases at both the producer and consumer levels, the future is still uncertain. Although the forecast for inflation has been written and seemingly set in stone, one still has to wonder when it will arrive. The reality is economic activity will have to accelerate to provide the necessary increase in the velocity of money required to fuel an inflationary spiral. Given the current constraints of the credit market and the growth projections for the U.S. economy this year, don't expect much movement in the PPI or CPI until early 2010.

The question for investors remains what to do in the meantime. If gold's performance since the onset of the credit crisis is any indication, the metal outperformed the S&P 500 by 30% during this period, it is clear those holding gold as an inflation hedge will be well positioned regardless of the outcome. At the same time, when inflation does rear its ugly head, no asset performed better than gold historically in past periods of increasing inflation.