Inflation on the way? Or another false alarm?

Downward pressure on prices the last few years has been so profound that even skyrocketing fuel costs, and rising prices for commodities hasn't brought about a serious rise in inflation.

But that might all be coming to an end. As the economy starts to rev up like a Trabant in below zero weather (very slowly and not very powerfully), that downward pressure starts to ease up and companies feel more like raising prices for the goods and services they supply.

New York Times:

A package of Oscar Mayer cold cuts. A pair of Nine West boots. A Whirlpool washing machine.

By the fall, people will most likely be paying more for each of them, as rising prices hit most consumer goods, say retailers, food companies and manufacturers of consumer products.

Cotton prices are near their highest level in more than a decade, after adjusting for inflation, and leather and polyester costs are jumping as well. Copper recently hit its highest level in about 40 years, and iron ore, used for steel, is fetching extremely high prices. Prices for corn, sugar, wheat, beef, pork and coffee are soaring. Labor overseas is becoming more expensive, meanwhile, and so are the utility bills to keep a factory running.

"There are cost pressures from virtually everywhere," said Wesley R. Card, the chief executive of the Jones Group, whose brands include Nine West and Anne Klein. After trying to keep retail prices flat or even lower during the recession, Jones says prices for its brands will climb 15 to 20 percent by autumn.

When commodity prices started to rise last summer, many manufacturers and retailers absorbed the costs, worried that shoppers would not pay higher prices during the competitive holiday season or while the economy was still fragile.

Inflation, slow growth, no jobs, and little improvement on the horizon. I didn't think all that was possible, but then, Obama has never been president before.

A price increase of 15-20% is very bad. Wages, already behind, will fail to keep up which will lower the standard of living for the majority of Americans. And if wage increases try and keep pace with this inflation - as unions will demand - a vicious cycle will begin and where it will end will be anyone's guess. As interest rates rise as the Fed tries to keep a lid on prices, economic activity will slow even more, threatening another recession.

The chances of a hyperinflationary event is still small. But with this crew in charge, anything is possible.

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