Inflation surge: Is it here to stay?

Inflation is seeping back into the economic landscape.

Americans know all too well what it feels like if they drive, buy a mozzarella and tomato salad, or want to ship food treats to a son or daughter at college by UPS. Prices that had been stable for a long time now require shelling out more money.

A spurt in inflation has important ramifications for the economy as a whole. The Federal Reserve, which might have been thinking about holding interest rates steady next month, might raise them instead. Higher prices may make some Americans think twice about how much to spend over the holidays. And inflation is not good for the bond market, which could ultimately push up the cost of mortgages and corporate funding.

Wednesday, the government quantified some of this financial hardship, reporting that the October consumer price index rose 0.6 percent, its fastest rate since March.

The uptick in consumer prices followed a report on Tuesday that October wholesale prices leaped by 1.7 percent - the highest pace in almost 15 years.

Still, economists differ over the meaning of the news. Some believe it may signal continued inflation. They don't think businesses can hit the productivity button any more and absorb the costs.

"This is the worst inflation since the late 1990s," says Roger Kubarych, chief economic Adviser for HVB Americas. "And the Fed was tightening considerably then."

Others point out, however, that the price of oil is dropping. In addition, they argue the US economy is now so competitive hardly anyone buys at retail prices anymore.

"Yes, we've had a modest uptick in inflation, but the key here is that it's not leading to an inflationary spiral," says Jose Rasco, an economist at Merrill Lynch & Co. "Labor is still two-thirds of the cost of doing business and when was the last time your boss gave you a raise?"

Economists are divided over whether inflation is here to stay. Many argue that most of the price increases are related to the spike in energy costs and the bad weather that hit both coasts this fall.

"Energy is the only rising price," says Tim McMahon, editor of inflationdata.com, a financial website. "The rest doesn't look bad."

Some even think the rising prices can be beneficial. Economist Robert Brusca of FAO-Economics says much of the inflation is getting tacked on to capital goods that are exported. Producers of oil industry machinery, construction equipment, metal-forming tools, electric transformers, light trucks, and mining equipment have all raised prices.

"I would argue that maybe it's good," he says. "They're selling their products abroad at a better price."

Yet imports to the US are also more expensive, in large part because the US dollar has fallen, particularly compared with the euro and the Canadian dollar. Last week, the government reported import prices from Europe were up 5.7 percent over a year ago and 6.1 percent for products made in Canada.

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