By now readers of my blog posts know that I tend to have a "muddle-through" point of view. Times may be good, or times may be bad, but rarely does Armageddon happen. In the last 100 years, it only happened 1 time -- in the 1929-39 Great Depression. There may have been inflation, there may have been recessions, but always people adapted and an equilibrium was struck, and growth resumed.
Even World Wars 1 and 2 (and 2 had a lot to do with the oppressive settlement of 1) occurred after 100 years of near universal international peace in Europe.

Over the last 25+ years the entire globe has been undergoing a disinflationary period of growth. Interest rates have declined; consumers in advanced countries who haven't made much progress in wages could at least refinance their debt, or perhaps cash in the value of booming stock or real estate assets.
All of that appears to be coming to an end.

I will be on the road this morning when the CPI is reported. I will check back in later and update after I have had a chance to look at the numbers and the release, but here are a few things to watch for: -- UPDATED with analysis!
Originally I was going to call our new form of rotten economic performance with heightened inflation, "Stagflation nouveau" but I don't think that quite catches the meaning I want to convey. I think "Scroogeflation" works better. What we have here is an inflation which is gradually, month after month, slowly eating away at middle and working class Americans' standard of living. It is the kind of inflation that Ebenezer Scrooge would welcome. Hence, "Scroogeflation". If you think of something better, let me know.

University of Oregon economist Tim Duy is rapidly becoming one of my favorite reads. His insight into how loosey goosey low interest rates in the US have engendered blowback unforeseen by the Fed is a great example:

For my part, I am concerned that the Fed appears to have written off the dollar. My concern stems from rising international tensions - the Fed is dumping additional liquidity into the system at a time when most central banks are attempting to turn off the faucet. The Fed is implicitly, if not explicitly, relying on countries with fixed exchange rates to absorb that additional liquidity at the cost of inflation in those economies. Moreover, those economies with floating rates become the anti-Dollar bets.…

I was in the midst of writing a diary about how there aren't "2 Americas", a la John Edwards, but 3, when it became clear that so much information has become available this week concerning the forces affecting Americans' demand for oil, that it demanded its own diary. Even if the world has reached the plateau of "Peak Oil" and supplies will gradually be rationed at higher and higher prices, there are going to be booms and busts along the way. I'm here to tell you that the evidence suggests that there has been a speculative boom in the last 6-9 months and we may shortly see a bust, echoing the sudden decline of oil from $80 to $55 a barrel just before the 2006 elections.

In several prior diaries, including Why Inflation isn't the Problem and Is the Inflation Rate Peaking I have laid out a scenario in which a deepening recession causes consumers to cut back, and this decline in demand in return causes inflation to ease. I have pointed out that this has been the scenario in every modern recession going back to and including the stagflationary "oil shock" recessions of the 1970s.
With another month's CPI and PPI data, there are signs -- albeit with substantial qualifications -- that the scenario is coming to pass. What is most interesting is that the year-over -year (NOT seasonally adjusted, AND including both food and energy) inflation rate continued to back off from its recent high water mark. Here's why....