Inflation v Deflation? Yes!

Is it possible that we could get inflation in "hard" assets, and deflation in consumer prices?

I guess so.

It is hard to reconcile these two contrasting effects, but it may be possible. After all, all things are possible, but not all things are probable.

That having been said, a case could be made that monetary profligacy needs an outlet, and hard assets appear to be the place of choice. Conversely, it is also possible that a deleveraging economy based on a crippled consumer could lead to declining consumer prices.

We've already seen significant asset deflation (a 60% haircut is not much fun), but not much of an effect in consumer prices (stripping out energy and housing if you follow the core numbers...which I think is a joke but it suits the argument I am making here). With the market having bounced 39%, that looks like a correction to an overreaction, but we are still to see the follow-on deflationary effect on consumer prices take hold. I think its coming though. Rising unemployment, rising foreclosures (across the credit spectrum), less access to credit, rising savings all point to lower consumption.

Lower demand points to lower prices. After all it is still a competitive economy (just).