Apologies up front for no links as I am typing this on the train to the city. I am curious to find out whether anyone else thinks that 2011 will be the year that inflation returns (and possibly with a vengeance). Both based on newspaper reports and talking to friends who do business in China it seems that prices there are going up quickly. Given how much we import that would suggest we will see some price increases here. There is also the distinct possibility of a significant increase in food prices in the US due to crop failures here and abroad (eg frost in Florida). The WSJ is reporting today that some futures prices are up 50 percent or more (soybeans, wheat, corn).

At the same time it appears that the Fed’s QE2 program is not succeeding at keeping rates down, despite massive purchases of government securities. These purchases are effectively printing new money as long as one believes that they will be difficult to reverse (in other words: easier for the Fed to buy massively than to sell massively).

Put together with the already precarious finances at the state and federal levels, this would seem to set us up for a potentially nasty period due to a supply shock. Or does all of this still get outweighed by the overall lackluster consumer demand and the high level of unemployment?