A clever way to infer market expectations about future inflation rates is to compare the interest rates of Treasury bonds, and inflation indexed Treasury bonds of different maturities, both of which are determined by auction in the bond market by highly trained financial professionals with lots of money at stake in their decisions.
For example, the interest rate spreads imply that bond traders think that there is a slightly greater than 25% chance that there will be deflation in the time period from April 15, 2010 to April 15, 2015.
In contrast, professional economists who do forecasts are much less likely to think that there is much of a chance of deflation.
In the recent Survey of Professional Forecasters, economists were asked to give their subjective probability of deflation during the next year. Specifically, they were asked about the chances that the quarterly consumer price index excluding food and energy (core CPI) will decline in 2011. According to the respondents, the probability of core CPI deflation in 2011 was only 2 percent.
Yes, the time periods don't match up, but the general conclusion holds true. Indeed, historically, deflation over a five year period is much less likely than deflation over a fifteen month time period in a period.
Economic theory would suggest that we are more likely to be right if we trust the bond traders rather than the professional forecasters.