I am sure, like me, many of you have noticed the sharp rise in the cost of goods and services over the past year. We are all familiar with the rise of gas prices, but I have noticed that basic groceries like milk, bread, vegetables and meat have been on the rise. I like to think of my wife and I as being frugal shoppers, but despite using coupons and looking for deals our grocery bills have risen by 25% to about $600 a month. Well today, the Labor Department reported that wholesale prices rose 1.1% last month alone. That was the second biggest increase in the past 33 years and near triple the rate analysts had been expecting.

The reports show inflation pressures, which are occurring at a time when the overall economy is slowing and many analysts believe it may have already toppled into a recession. That raises concerns that the country could be facing another out of stagflation, the malady that last occurred in the 1970s when economic growth stagnated but inflation kept rising. Such a development would put the Federal Reserve in a bind. The central bank has been cutting interest rates in an effort to combat the current slowdown. However, if inflation pressures keep rising, it might be forced to stop cutting interest rates for fear that it would make inflation worse. (USA today)

Drilling into the inflation figures showed food costs rose 1.2% in March (equivalent to a 14% annualized rate), reflecting big increases in the price of vegetables, rice, and beef. I can definitely attest to this and it looks like more rises are on the way as the input costs (fuel, machinery, labor) to farming these products rises. Per the above statement, this paints a bleak picture for the economy's future. The only silver lining of this would be that as the interest rate cutting slows (low interest rates drive growth, which leads to rising inflation), the US dollar should start to appreciate from its current historic lows. In the meantime, stock up on those nonperishable goods because prices are heading further north.

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