The Fed is justifiably worried about deflation,which is more worrisome and tenacious than inflation. That is the reason they launched the latest round of quantitative easing. Many people don’t see the danger. Even the most recent data shows no serious indication of either inflation or deflation.

Yet, if you look deeper, you see the U.S. is becoming bifurcated into one section that is part of the globalized world and another section of the country that is less touched by globalization.

Today, Fed Chairman Bernanke will speak of a “two-speed global economy.” Because the recession was started by the U.S., it is worst here. The rest of the world was pulled into it and are recovering faster. As a result of their rapid recoveries, their inflation is increasing. (Yesterday, China slapped price controls on certain food items.) Their exports are our imports, which means we are importing their inflation.

In addition, because commodities such as oil and gold are priced only in dollars, the cost of those commodities is increasing as the value of the dollar continues to decline. The more value the dollar loses, sellers of gold will demand more dollars for the ounce of gold.

That section of the U.S. that does not consume large amounts of imports or commodities is not seeing inflationary pressure. The other section is.

Of course, averaging the two sections of the U.S. produces a non-worrisome CPI. However, I do worry it will show real inflation within another year or so.