As the U.S. economy slowed over the summer, some high-profile economists argued that Japanese-style deflation was on the horizon.

Even more hysterical voices said a return to 1970s-style stagflation -- a stagnant economy that nonetheless sees purchasing power decline thanks to runaway inflation -- was in the cards.

Now, amid a remarkable bounce back in manufacturing activity around the world, another worry looms. Surging commodity prices amid booming demand are leading to fears of inflationary forces.

Don't Worry So Much for Corporate Profits

While the worries are real, investors should also keep them in perspective. The downside of better growth than most predicted should be welcome, given the alternatives for now.

And for all the talk that spiking inflation will crush profit margins and the stock market, the real toll may instead be on consumers at the lower end of socioeconomic sector, the people already hit hard by the recession. Consumers struggling to make ends meet, not corporations with surging profits, are most at risk.

Evidence of an accelerating recovery keeps mounting. The Institute of Supply Management (ISM) reported earlier this week that factory activity in January expanded at the fastest pace in nearly seven years.

At 60.8, the ISM index signaled strong expansion. Even the reading of 57 that many on Wall Street had expected would be consistent with a GDP growth rate of over 4%, analysts at JPMorgan (JPM) wrote in a research note this week.

And the ADP private sector employment report on Wednesday added to encouraging signs on the jobs front.

Rising Energy and Food Prices


Despite the overall bullish ISM data, signs of inflationary pressures are mounting, too. The prices-paid component of the index jumped to 81.5 from 72.5, the highest since July 2008.

Prices at the gas pump are rising, and food costs could go up as well. Retail gasoline prices have moved up 15% since August, analysts at JPMorgan wrote, and rising financial markets are indicating food costs could go up, too.

"While food prices have not moved up nearly as fast as energy prices," the analysts said, "prices of exchange-traded foodstuffs remain on the rise, and eventual steeper increases in final consumer food prices seem likely."

Concerns About Cutbacks on Basic Items

For the moment, inflation seems unlikely to tank the stock market. In fact, interest rates around the current level have historically been associated with price-to-earnings multiples in the low- to mid-20s, according to some analysts. Even with the recent rally, the S&P 500 still trades at less than 15 times this year's earnings estimates.

Rather than slamming the stock market, rising prices may disproportionately hit the wallets of financially ailing Americans, and chatter about cutbacks on basic items is on the rise.

For example, according to JPMorgan, households in the bottom fifth of income distribution spend 9% of after-tax income on gasoline -- while the top fifth spends only 2%.

Fears that rising prices will dampen overall consumer demand are also misplaced, given the massive purchasing power amassed by the wealthiest. Final sales and big-ticket items like auto sales have continued to do well.

Instead, if prices rise rapidly the "burden will fall disproportionately on the lower end of the income distribution," analysts at JPMorgan wrote. That means Main Street will feel any inflationary crunch before Wall Street does.


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Dereck

Major Fraud Alert


The entire Federal Banking System under FirstGov has been "Consumed" and "Levied" by way of a Maryland State Circuit/District Court Ruled “Appropriation and Garnishment” of all Future Earnings prior to and after 2004 against Bank Of America by way of the F.D.I.C. Regulations Prohibiting failing Banks from Merging with other failing Banks between the Dates of 08/04/08 and 10/09/09.

Bank of America violated the 21st Century Act: Final Amendments to Regulation CC Section: http://www.federalreserve.gov/boarddocs/press/bcreg/2004/20040726/attachment.pdf

seeking reimbursement of Credit, Loan, and Finance Balances as a "Bank Entity" and not a "Nonbank Consumer" as specified on Pages 85 and 86.

The person they sued through a LLC. Debt Collection Company and Law Firm was the "World Fortune Owner" who "Counterclaimed" and won.

Now all Contracts of any Corporations (Including Employment) under the "Controlling Interest" of any Investment Bank Worldwide are "Null and Void", and are also under the stipulated Rules and Regulations of an "Closely-held S Corporation rendering all Employed under Legal Actions against “Domination”, and also means that "No Corporation can hold Shares" officially making every Stock Exchange on the Planet a "Ponzi Scheme" by default.

Businesses owned by the States (Public Corporations) are being sold Stock Shares by Corporations also under the Federal Banking System in this Worldwide "Ponzi Scheme". The World Fortune Company Merrick Inc. Sweden is dissolving Millions and Billions of Dollars from "All Levels of Government"in the U.S. of Financing based upon Years of "negligent inaction" involving this case.

The Federal Government has already been forced to discontinue supplying the Financing States use to pay their debts, Persons in Government Offices may want to begin to take their jobs more seriously, these are different times from 10 Years ago and you will not be accepted civil servants here just because you say you are here to do the right thing.

May 29 2011 at 1:34 AM Report abuse rate up rate down Reply
Dereck

Major Fraud Alert


The entire Federal Banking System under FirstGov has been "Consumed" and "Levied" by way of a Maryland State Circuit/District Court Ruled “Appropriation and Garnishment” of all Future Earnings prior to and after 2004 against Bank Of America by way of the F.D.I.C. Regulations Prohibiting failing Banks from Merging with other failing Banks between the Dates of 08/04/08 and 10/09/09.

Bank of America violated the 21st Century Act: Final Amendments to Regulation CC Section: http://www.federalreserve.gov/boarddocs/press/bcreg/2004/20040726/attachment.pdf

seeking reimbursement of Credit, Loan, and Finance Balances as a "Bank Entity" and not a "Nonbank Consumer" as specified on Pages 85 and 86.

The person they sued through a LLC. Debt Collection Company and Law Firm was the "World Fortune Owner" who "Counterclaimed" and won.

Now all Contracts of any Corporations (Including Employment) under the "Controlling Interest" of any Investment Bank Worldwide are "Null and Void", and are also under the stipulated Rules and Regulations of an "Closely-held S Corporation rendering all Employed under Legal Actions against “Domination”, and also means that "No Corporation can hold Shares" officially making every Stock Exchange on the Planet a "Ponzi Scheme" by default.

Businesses owned by the States (Public Corporations) are being sold Stock Shares by Corporations also under the Federal Banking System in this Worldwide "Ponzi Scheme". The World Fortune Company Merrick Inc. Sweden is dissolving Millions and Billions of Dollars from "All Levels of Government"in the U.S. of Financing based upon Years of "negligent inaction" involving this case.

The Federal Government has already been forced to discontinue supplying the Financing States use to pay their debts, Persons in Government Offices may want to begin to take their jobs more seriously, these are different times from 10 Years ago and you will not be accepted civil servants here just because you say you are here to do the right thing.

May 29 2011 at 1:33 AM Report abuse rate up rate down Reply
L R Adams

Food prices have increased over the last two months. Prior to the price increases the amount or volume of food you get for the money had decreased significantly. I like to have donuts with my coffee in the A.M. the donuts were a little larger in diameter than a tennis ball. The donuts I buy NOW are smaller, I refer to them as nickel donuts. So I guess its more for less, maybe they can call skinny inflation.

February 04 2011 at 8:55 PM Report abuse +1 rate up rate down Reply
1 reply to L R Adams's comment
vcgh2000

It just goes to show that the Consumer Price Index is phony.For years, since 1995, when it was recalibrated, not to reflect rising food and energy prices, the purchacing power of the dollar has been dropping at a "real" 8% to 10%. That 16 oz. can of coffee has shrunk to 11 oz. or less, a half gallon of ice cream now is 3 quarts.....Yet, even the Media cites these meaningless numbers.

February 05 2011 at 8:02 AM Report abuse rate up rate down Reply
Frank

Food prices...COULD do up???? Have these people gone shopping recently..??? Where is reality???

February 04 2011 at 8:37 AM Report abuse rate up rate down Reply
Curtis

To all of the complainers. First thing, if you read this article you can see that every few months there is a different problem There deflation, stagflation, inflation, hyperinflation, and yet we have not seen any of these things yet. The people writing these articles don’t have a clue. Yet every starts complaining like these things have happened. Yes, oil prices are up, but blame OPEC for that. Food prices goes up when it cost more to be transported. Stop wasting energy and force OPEC to lower prices. There will not be any true inflation until Americans are back to work, and that will be a good thing. We are now part of a global economy now and things will never be the same as it was. We will never have the jobs that we had in the past. We had three thing that created jobs in the past. One, a young country with cities and an infrastructure to be built, US citizens needed cars to get to work and foreign car were junk, and we led the world in electronics. Now the cities and infrastructure is built, everyone has cars and other countries are building car as good or better than we are, and we literally let Asia take our electronics businesses. We're not doomed but we need to stop fighting each other politically, stop bitching and work together as Americans if we don't want to become a second class nation.

February 04 2011 at 8:03 AM Report abuse rate up rate down Reply
Robert & Lisa

Our socialist public educational system has indoctrinated our children into believing capitalism and freedom is bad and socialism is good. If Socialism is so good, why does the long time socialist government of Mexico boast of being the #1 producer of silver, plenty of oil, and the richest man in the world, yet 99% of their people are in the poverty level making an average of less than 6 dollars a day. Corruption is rampant. The evil, ultra rich see Mexico and want to implement socialism here, where they can have all of the wealth and power and the middle class will now be among the poor. That is what their Demoncrat puppets in the white house and senate are doing to us.

February 04 2011 at 7:38 AM Report abuse +2 rate up rate down Reply
rb

Rising gas prices? Rising food prices? The politicians don't care. They all have jobs...high paying jobs with ridiculous benefits. The majority of Americans are struggling to get by, while the fat cat politicians enjoy the good life. How's that hope and change going for ya?

February 04 2011 at 5:32 AM Report abuse +4 rate up rate down Reply
zzsparx

Lacitsileinad *****
This appears to me to be a locked left "cut and paste" poster of propaganda. Part of the gearing up for 2012. 3 long posts in 6 minutes. You are a fraud plain and simple. Amongst other falsehoods and statements completely out of context, I see you perpetuating the Keynesian economic model. Break free and become a Free Thinker. Research History for yourself instead of buying into the dribble . . .

You think we have a Economic problem now ?? Tax the so called "Rich" up to 90% and see what happens to jobs. The whole country will be in lined up to be working right next to you in the Government (public sector)

I've seen this throughout the web.

February 04 2011 at 3:35 AM Report abuse +2 rate up rate down Reply
Sam Das

VK likes to tell stories... it is simple oddity of market vectors. Go figure

February 04 2011 at 2:34 AM Report abuse +1 rate up rate down Reply
Greg

Google.....BANKRUPTCY OF U.S. IS ‘MATHEMATICAL CERTAINTY,’ SAYS FORMER CEO OF NATION’S 10th LARGEST BANK.... November 5, 2010.....John Allison, who for two decades served as chairman and CEO of BB&T, the nation’s 10th largest bank, told CNSNews.com it is a “mathematical certainty” that the United States government will go bankrupt unless it dramatically changes its fiscal direction. ~~~~~ Allison likened what he sees as the predictable future bankruptcy of the United States to the problems at Fannie Mae and Freddie Mac, whose insolvency he also said was foreseeable to those who studied their business practices and financial situation. ~~~~~ “I think the first thing we have to realize is where we’re going and to face it objectively,” Allison told CNSNews.com, when asked about the trillion-dollar-plus deficits the federal government has run for three straight years, the more than $13 trillion in federal debt, and the $61.9 trillion long-term shortfall the government faces (according to the analysis of the Peter G. Peterson Foundation) if the government is to pay all the benefits it has promised through entitlement programs. ~~~~~ “If you run the numbers, on all those numbers that you just talked about, which I think are accurate, very accurate, in the blink of an eye, the United States goes bankrupt,” said Allison. “It’s a mathematical certainty. ~~~~~ “It reminds me very much of that story I told you about Freddie Mac and Fannie Mae,” said Allison. “We were running the numbers, and Freddie Mac and Fannie Mae went bankrupt, and we got there. ~~~~~ “Now, countries don’t go bankrupt the way companies do,” said Allison. “They don’t file bankruptcy. They usually hyper-inflate. They print a bunch of paper money, or they become Third World economies like Argentina--unless we change direction. ~~~~~ So, we absolutely have to change direction. And the irony of that is it requires an interesting combination. It requires both discipline, but it also requires a focus on growing our economy. And it means a fundamental philosophical change from where we are today, from the idea of redistributing wealth to the idea of creating wealth.” ~~~~~“I was on a committee, a Financial Services Roundtable, for nine years trying to do something about Freddie Mac and Fannie Mae,” said Allison. “You couldn’t help but see it coming,” he said. “You ran the numbers, particularly the last several years, and it was mathematically certain Freddie and Fannie were going bankrupt.” ~~~~~ “We met with Congress. We met with [House Financial Services Chairman] Barney Frank and [Senate Banking Chairman] Chris Dodd and they absolutely wouldn’t see it,” said Allison.....

February 03 2011 at 11:04 PM Report abuse +1 rate up rate down Reply