Inflation becomes the new comeback kid

An unwelcome visitor to the economy is back — inflation.

The year-end figures for 2007 show an inflation rate of 4.1 percent, up from a relatively restrained 2.5 percent for 2006 and the highest in 17 years. And another index shows that the problem isn't over yet. The producer price index, which measures inflation at the wholesale level, went up 6.3 percent, the highest since the economically awful year of 1981.

If it is any consolation — and it is only to economists — the core rate of inflation rose only 2.4 percent last year. The core rate is price increases minus food and energy but outside the cost of shelter that's where ordinary people spend their money. Food price increases last year weren't too terrible, up 4.9 percent, but gas prices were up just shy of 30 percent.

The inflation was reflected in average weekly earnings, which fell on an adjusted basis 0.9 percent in 2007. All of this detracts from what consumers can spend on other things and it is consumer spending that drives the greater economy.

The inflation rate joins a number of other unhappy economic measures. Unemployment spurted to 5 percent at year's end. Retail sales are flat; so is factory output; and so was economic growth for the fourth quarter of 2007. Job growth is anemic. The market indexes are falling and there seems no end in sight to the woes of the housing industry and mortgage market.

The tame core inflation rate suggests that this bout of inflation is nowhere near as intractable as the unrestrained price increases of the '70s. But it also suggests that Congress should take care in enacting the inevitable stimulus package that it doesn't aggravate the problem instead.