With crude oil prices hitting new highs and further signs of price pressures elsewhere, inflation remained public enemy No. 1 one on Wall Street this week. At the same time, evidence of a cooling economy kept alive the specter of stagflation. After posting their biggest single-day gains of the year on Wednesday, the major indices finished the week little changed.

The week culminated with a much weaker-than-expected March jobs report on Friday, which combined ungracefully with higher prices paid in a key manufacturing survey. February's rosy "Goldilocks" scenario of higher jobs growth with little inflation now seems to be a crude April Fool's joke. Instead, Goldilocks is getting an expensive, oil-tainted perm.

The price of crude oil surged $3 to $57.27 for the week, and hit an all-time high of $57.70 Friday. The new upward spike was fueled by soaring gasoline prices ahead of the summer driving season, and after Goldman Sachs said Thursday that oil markets were now in a "super spike" period that could lead prices above $100 per barrel.

The

Dow Jones Industrial Average

fell to 10,404, down 0.03% from last week's close at 10,442. The

S&P 500

rose slightly to 1172 from 1171 at last week's close. The

Nasdaq Composite

remained firmly below the 2000 level, ending the week down 0.3% at 1984.

Friday's slide confirmed the market's negative performance in March and the first quarter, when the Dow fell 2.4%, the S&P shed 2.5%, and the Nasdaq slumped more than 8%, its worst quarter since the third quarter of 2002. Friday's slide was spurred by notable weakness in

AIG

(AIG) - Get Report

,

Wal-Mart

(WMT) - Get Report

and

Best Buy

(BBY) - Get Report

. Meanwhile, strength in energy stocks such as

Halliburton

(HAL) - Get Report

and

Unocal

(UCL)

prevented wider damage to blue-chip indices.

Ringing the Bells

After ringing the alarm bells on inflation last week, it seems the Fed has succeeded in putting Wall Street on high alert. And in perfect coordination, this week brought more evidence that surging energy and commodity prices are being successfully passed down the production chain. At the same time, growth appears shakier.

Friday's action symbolized the market's current dilemma. March payroll growth came in at a much-weaker-than-expected 110,000. This originally provided a relief-rally based on expectations that, not only would the Fed not tighten rates more aggressively, it may even soon step off the brakes altogether.

Those hopes were quashed as the prices paid index of the March manufacturing ISM survey surged to 73 points, way above expectations for a reading of 66, and its February level of 65.6. (The ISM data confirmed similar indications in the Chicago manufacturing survey Thursday and in last week's February producer and consumer price index reports.)

In addition to the ISM data, market players took another look at previously ignored components of the March jobs report: Hourly earnings rose 0.3% in March, after an upwardly revised gain of 0.1% in February.

Also on Friday, the Fed was unrelenting in sending its message about inflation, courtesy of Chicago Fed president Michael Moskow.

Moskow, who votes on interest rates at the FOMC, appeared on

CNBC

right after the release of the unemployment report, while Wall Street was still cheering the payroll number. The Fed is "concerned about inflation," Moskow said calmly, citing energy prices and import prices as particular areas of concern.

As is customary, he wrapped the bitter pill with honey, saying that inflation "remains contained."

Even though this was April 1, dollar bulls weren't fooled. The buck rallied on the comment even as Wall Street was still cheering payrolls. The dollar rose against the euro and reached a five-month high against the yen Friday, after Japanese industrial data disappointed.

Wall Street still caught up with the action and sold off Friday. And it wasn't the first time that the market saw its hopes dashed this week. On Wednesday, the market had hailed a "spring rally" as the major indices put in their best single-day performance of the year. While the move was most likely end-of-quarter portfolio adjustments, it was attributed to a dip in crude oil prices and in-line GDP growth in the fourth quarter.

A closer look at the fourth-quarter GDP, however, revealed that its inflation component was revised upward to 0.2%, and that its overall growth trend is now at levels not seen since 1991.

Similarly, the Fed's favorite inflation indicator, the core personal consumption expenditure index, rose 0.3% in February, below forecasts of a 0.4% gain. But over the past three months, PCE is trending up at 2% on an annualized basis, near the top of the Fed's target range.

Now the Fed still has to view March and April economic reports before its next rate-setting meeting in May.

Conundrums and Puzzles

Amid all the inflation paranoia, the yield of the benchmark 10-year Treasury counterintuitively fell to 4.45% from 4.59% last Friday. The 10-year's rally helped rate-sensitive stocks such as

Toll Brothers

(TOL) - Get Report

rebound Friday from recent losses.

Some attributed renewed strength in Treasuries to a rising dollar, a flight to safety as stocks tumbled, or the jobs report having more importance than inflation data in influencing the Fed's tightening mode.

But not according to Kevin McNair, portfolio manager at the BB&T Asset Management's fixed-income team: "A lot of people had been betting on continued growth, there's less of that now. The inflation picture, that's where it's at now."

For his part, the Fed's Moskow had his own version. Asked on

CNBC

whether long-term rates not moving higher still represented what Alan Greenspan called a conundrum in February, he said: "It's less so than in February. But it's still a puzzle."

In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send

your feedback.