In the late 2007, inflation gained a good deal of its underlying momentum from rising oil prices whose cause lay in the Middle East, not in our own economy. Also important was a consistent upward pressure of food prices, partly the consequence of serious food shortages in the underdeveloped world, partly the result of adverse weather. A third cause was the generally rising trend of many other raw material prices, pulled up by worldwide boom, All these exogenous shocks acted as a constant inflationary stimulus whose effects were spread throughout system by indexing arrangements.
Now comes the good luck. By 4th quarter of 2008, all these pressures will disappear. The OPEC cartel had set the price of oil so high that oil production soar, while oil consumption is dramatically economised. As a result, the price of oil fall from USD140s to just below USD90. In the underdeveloped world, population growth gradually slowed down and the agricultural production finally speeded up. With good weather as a big assist, long-persisting food shortages slowly give way to exportable food 'surpluses', with the consequence of falling agricultural prices. As the boom in the developed world loses its momentum in 2008, demand for material slump, maybe disastrously.
Thus, as expected and desired, tight money brought on a recession and higher unemployment rate. And as the pressure of wage costs declined, and the easy days of ever-expanding markets gave way to contracting markets, corporations were forced into strategies of shaving prices.
Psychologically, inflation will come to an end with the crash in asset values in the late 2008. Stock market will crash, housing price will fall dramatically in most of the world.