The stuttering US economy has lurched deeper into the most unwelcome of worlds: falling growth and sharply higher inflation.
So sharp was the rise in consumer prices in December that in normal times investors would be fretting about a rise in interest rates, not punting on the US Federal Reserve slashing rates by half a per cent sometime in the next two weeks.
The CPI rise was completely the opposite to the surprise small fall in December's Producer Price Index which was the only bit of good news for the US this week after retail sales surprisingly fell 0.4% in December which is the biggest and most important month of the year for retailers.
US consumer prices rose at a faster than expected pace in December, pushing inflation to its highest yearly increase since 1990.
The rise in inflation over the year was 4.1%, the highest since the 6.1% jump 17 years ago.
Still, this wasn't as high as in November when the year on year rate was 4.3% because of soaring energy prices.
But economists said the continuing high level of inflation raises fears of stagflation, with the economy beset by cost pressures as it slows to stalling speed.
The Fed will ignore the CPI rise any way. Like November, much of it was driven by a rise in non-core prices.
While the Fed' is pre-occupied with cutting rates and trying to ease the economy's slide it is concerned by the high levels of cost pressures, especially from the near record prices for oil and the rising costs of food and commodities.
Food price inflation looks like being this year's big 'sleeper' so far as cost pressures are concerned. The battle between biofuel users, grain traders, growers, and the livestock and human consumption sectors (wheat for bread, pasta; corn for maize flour) could be a major issue as the Presidential election revs up later in the year.
As much as economists strip out non-core items like food and energy costs from their assessment of prices, voters in this election year, will put them back into their equation, as will presidential candidates. And that will make life tough for the Fed and others who will have to battle those perceptions, as well as the reality of the economy's slide.
But the high threat of a recession in the US, sparked by the subprime crisis related credit squeeze, is of greater concern to the central bank (and its counterparts elsewhere)
Energy, food, apparel and housing prices all grew at a slower pace in December as the CPI grew 0.3%, more than the 0.2% economists had expected.
The core CPI, which excludes volatile energy and food prices, rose by 0.2%, in line with predictions, and lower than the 0.3% rise recorded in November.
The yearly rise in core inflation was 2.4%, probably higher than the Fed would prefer. But the quarterly core inflation rate rose to 2.7% in the final three months of the year, maintaining the rising trend over the course of 2007 after increases of 2.3% in the first two quarters and 2.5%. And that continuing rise is the real concern as price pressures are clearly not easing.
Meanwhile the fourth quarter results for the US's third biggest investment bank, JPMorgan Chase, were as bad as expected, but nowhere near those from Citigroup yesterday.
The bank earned a profit that was sharply down and had write offs because of dodgy debt, but JPMorgan Chase joined Citigroup in revealing a very worrying worsening in the state of its consumer credit book.
It's clear from the results of the two banks in this area, plus last week's earnings warnings from American Express and the credit card issuer, Capital One (not to mention from luxury goods retailer, Tiffany's) that the subprime mess is now hurting consumer debts in the car loans, personal credit and credit card area.
JPMorgan Chase said fourth-quarter earnings sank 21% per cent following a $US1.3 billion subprime-related write-down, much less than Citi's $US9.8 billion overall loss and $US18.1 billion in write-ffs.
Citi's write-offs included a surprise $US4.1 billion in its consumer book.
JPMorgan also saw increased credit costs with the provision for credit losses in the retail financial services division was $US 1.1 billion, compared with $US162 million in 2006.The latest figure includes a $US395 million increase in the allowance for losses on home equity loans.
The provision for losses on auto loans jumped from $US36m to $US133m, while the provision for losses on the bank's giant credit card business rose 40% to $US1.8 billion.
The US consumer is clearly in trouble, so it's no wonder they shut their wallets at Christmas.
This is bad news for the economy which has been driven by consumer spending for much of the past five years.
