How can anyone say that there is little to no inflation right now? Do they pay their own bills ( particularly the energy bill)? Go grocery shopping? Put gas in thier car? Do they buy something, almost anything? I am actually frightened to compare my 2006 cost of living to that of 2007, and not because I have really changed my lifestyle. I am scared because if I do, it might cause be to short the heck out of the US dollar, the equity markets, put on a curve steepening trade, and buy even more gold futures! I have successfully avoided 'trading' over the past few years, but the markets seem to be calling out to me. If a review of your bills does not convince you there is inflation, then just have a look at how commodity prices in general have moved the past year, particularly the agricultural commodites. Wheat, corn, sugar.... up and up alot. Gold? Up and up alot. Oil? Up and up alot. A few folks have started to write about stagflation, but sadly, I think you are going to hear a lot more about it.
For those readers of like gender who do not tend to read the financials, think about how much you are willing to pay ( would pay if you bought one ) for a handbag these days? ( a discussion I had with a dear friend of mine recently.) It was not that long ago that I thought that $250 was a huge amount for a bag... now, forget it. The same store in my town that used to sell bags that averaged around that amount, now average at least 30% higher. At least. Sure a little of it might be moving to more upscale brands, but I think more of it has been the combination of rising material prices, lower US dollar, AND pushing the margins. As further evidence I looked through some old magazines and just reviewed the prices for products offered. If you were to 'add up' the cost of the average outfit offered to you through LUCKY magazine today, compared to two years ago, trust me, the prices are much higher that the reported inflation numbers are telling us. Much higher.
There is inflation, and we may already be in a recession. EEK... I am really, really happy I am not a FED official right now. What do I think they will do? Continue to cut rates and take the risk on the inflation side. With the credit markets in such trouble, and the banking system on sandy ground, they cannot afford not to.