Goldilocks Doesn't Live Here Anymore

With the core consumer price index rising at a 1.7% rate over the past year and the yield on the 10-year Treasury note under 4%, inflation appears quite subdued. Then again, oil prices have doubled, other raw materials costs have gained 35% and even Starbucks (SBUX Quote) is raising prices.

What to make of these seemingly conflicting signals? Inflation optimists see a weak economy that can't generate enough punch to support price hikes. Pessimists see a return to 1970s-style stagflation as higher oil simultaneously feeds inflation and curtails demand.

And the real worrywarts in the crowd believe falling prices, even a Japanese-style deflationary spiral, are the primary threat and driver of monetary policy. ...