But What About Inflation?

Here's what I just got in my inbox from the Wall Street Journal's online alert system:

NEWS ALERT
from The Wall Street Journal


Oct. 18, 2006

U.S. consumer prices tumbled last month on the back of a steep slide in energy prices, but the underlying inflation rate accelerated to its highest annual rate in over a decade, which should keep Federal Reserve officials on edge about inflation risks in the economy. The overall consumer price index decreased 0.5% in September, the biggest drop since November 2005, the Labor Department said. Excluding food and energy, the CPI advanced 0.2%.

This threatens the perfect economic storm scenario I've been fretting and writing about for a few months now: a recession triggered by the housing market collapse with the return of higher inflation. "Stagflation" is a word I remember well from my youth. Energy prices won't stay relatively low as they are at the moment, either. Low gas prices may very well represent a temporary artifact of the U. S. political cycle, with elections in early November: a bit of a gift from the international oil industry to help keep a very friendly U. S. administration in power. Do I sound cynical? I live in the DC metro area.