It's deflationary in the sense that with passing time each coin is worth more than before. There is some correlation with money supply, but deflation ultimately means: how much can you buy for a set amount of currency.
The inflation/deflation of the US dollar for instance is measured by statistics like the CPI, which boils down to how much consumer goods you can buy. If you can buy 10 peaces of bread this year for $10 but only 9 peaces of bred next year, you have inflation. If you can buy 11, you have deflation. How the dollar supply (number of existing dollars) changes has a correlation to this (i.e. it influences this), but it's not defining it.
OK, so with passing time, coins are worth more than before because the usage demand is increasing faster than the mining supply.
I'm not sure if that is your argument though?
Essentially, yes. More precisely demand is increasing faster than readily available supply (people selling Bitcoins for goods or other currencies, also called liquidity).
When astronomical quantities of USD are being printed into existence (today's QE is like 80 bln dollars per month), CPI is not a good indicator. Rich guys who get all this new money cannot buy 100x more food and toilet paper. What they can do is to buy expensive property all over the world (not very liquid, thus not affecting everyday prices much) and stocks.
Right now CPI does not change as much as USD supply changes, so people don't worry. However, it does not mean this is not delayed and will hit down the road even if they suddenly stop printing new dollars.
It's deflationary in the sense that with passing time each coin is worth more than before. There is some correlation with money supply, but deflation ultimately means: how much can you buy for a set amount of currency.
The inflation/deflation of the US dollar for instance is measured by statistics like the CPI, which boils down to how much consumer goods you can buy. If you can buy 10 peaces of bread this year for $10 but only 9 peaces of bred next year, you have inflation. If you can buy 11, you have deflation. How the dollar supply (number of existing dollars) changes has a correlation to this (i.e. it influences this), but it's not defining it.
http://en.wikipedia.org/wiki/Consumer_price_index