Following the financial crisis of 2008, many economists weren't very worried about inflation. The bigger fear was deflation.
Falling prices sounds good, but it's a scary prospect: People don't invest or buy things if they think they're about to get cheaper. The result is a downward spiral and economic malaise. (And debt gets harder to repay as well.)
But things are changing now. A rising price of oil has more than doubled gas prices from the early 2016 low, up 130 percent to $2.64 a gallon.
Import prices have been on the rise as well, increasing at a 3.6 percent annual rate.
Even without the uptick in gas prices, inflation pressures are building. So-called core inflation, which excludes gas and food, is running at a 2.1 percent annual rate. That's above the level the Federal Reserve targets.
Gluskin Sheff economist David Rosenberg estimates that there is an 80 percent chance that the core consumer price index breaks above the 2.5 percent threshold and 50-50 odds it pushes above three percent.
One alternative measure of inflation already is above 3 percent -- the Underlying Inflation Gauge from the Federal Reserve Bank of New York has returned to the highs of the last business cycle.
It is a broader measure, including price information not only from goods in the store but also financial market data and labor cost measures. And Fed researchers have found that it is a strong predictor of turning points in inflation trends and has shown "higher forecast accuracy compared with core inflation measures."
If true, prices at the store and at the pump are going to keep heading higher.
No surprise that Rosenberg thinks that "will cause a bit of a freakout in stocks and bonds."
And without an accompanying upward tick in hourly earnings (which are only rising at a 2.7 percent annual rate) consumer spending will stall, confidence will decline, and the economy will hit serious headwinds.
Moreover, the Fed will be forced to quicken its rate hike pace to avoid a nightmare "stagflation" scenario -- a combination of economic stagnation and high inflation.