If inflation's in check, why are we so worried?

It's always something. A few years ago, a veteran manufacturing executive was nearly stalking me to get me to write more about the risk of imminent deflation, the phenomenon that helped make the Great Depression so long and painful.

It didn't seem kooky at the time. Many companies had gone for years without the ability to raise prices. Indeed, many prices had been falling. In 2002, the Economist wrote a cover story about the danger.

Lately the "something" has been stagflation: the combination of inflation and slow economic growth that hobbled the industrialized world in the 1970s. Serious economists worried about "the new stagflation." And some similarities were eerie: rising oil prices, an easy-credit Federal Reserve and the bills coming due from a long war.

But if Wednesday's government report on consumer prices is any indication, you can keep the leisure suits and platform shoes in the attic. This is not a repeat of the 1970s.

The Labor Department said its Consumer Price Index rose a modest 0.2 percent in April, with inflation up 3.9 percent year-over-year. Seattle, which suffered a big inflation scare in the last report (the data for metro areas comes out every two months), saw a similarly muted increase.

"For all the talk of inflation, the numbers do not look all that frightening," said Mark Vitner, senior economist at Wachovia, the Charlotte, N.C., banking giant. "Long-term inflation expectations remain constrained and the fundamentals, such as productivity and labor costs, also point to only modest inflationary pressures."

Part of that moderation is a natural outgrowth of a slowing economy as people spend less.

This news doesn't jibe with experience on the ground. I've spent several weeks talking to people in the Puget Sound region about the economy, and higher gasoline and food prices are their No. 1 concern.

A new Washington Post/ABC poll showed 68 percent of respondents worried about keeping up their living standards, a jump of 17 percentage points since the last survey in December.

Inflation understated

The author and former Republican strategist Kevin Phillips, who spoke in Seattle last month, argues that the government's yardsticks seriously understate inflation. In his argument, the "hoax" lower inflation numbers help government and big business to avoid paying cost-of-living increases to entitlement recipients and workers.

Even without a conspiratorial bent, most people feel uneasy. The paradigm of the 1970s stagflation is the only historical parallel they can summon. Yet important differences exist: the oil shock has not been so sudden; the Fed has not spent years brewing inflation with an easy-money policy; and globalization has tended to bring the costs of many goods down.

Useful time frame

An equally useful time frame is the period from 1982 until recently, when Americans lived through a period of unusually low inflation — even disinflation — as the prices for many goods, including gasoline, when adjusted for inflation hit real-dollar levels not seen in decades.

In other words, after so many years of stable prices, any return of inflation would be a sharp poke.

Inflation may yet be an issue — one month's report is only one snapshot. Even without stagflation, a page has been turned and the anxieties of so many represent more than needless fear or worry about a downturn that may not become a sustained recession. Americans are feeling very real strains. Among them:

• Sustained rising energy prices: Unlike the sudden supply disruptions of the 1970s, these price increases have come on slowly but steadily. We've been lobsters sitting in ever-hotter water and now it's starting to hurt. While some increases are likely driven by speculation, the fundamentals of the oil world are the main culprits.

These include skyrocketing demand from the developing world, slowing production, and the difficulty of reaching and cost of refining much of the remaining oil. The age of cheap oil may indeed be over, even though prices will likely fall and rise as all markets do.

• Stagnant wages: Paychecks for most Americans since 2001 have not kept pace with inflation, much less with the gains seen in the post-World War II era, especially before the mid-1970s.

• Weakening dollar: The lower value of U.S. currency makes dollar-based assets worth less and goods in a global marketplace cost more.

• High debt levels: Historic high debt weighs down consumers, whose spending is the main engine of the U.S. economy. Savings are in negative territory as the baby boomers prepare to retire. The situation is matched by a federal government deeply in debt to foreign creditors.

• Credit crunch: The continuing crises in housing and overall credit — "the financial markets are still far from normal," Fed Chairman Ben Bernanke said this week — trickle down to individuals in the form of foreclosures, layoffs and lower values of their biggest asset, their homes.

• Destabilization: Continued destabilization of the U.S. economy by globalization, competition, debt and periodic bubble bursts.

• Climate change: The beginning of the economic costs from climate change. One big cause of higher food prices is sustained drought in Australia.

Together, these forces lack a sexy name like stagflation. And they may turn out to be one of those "somethings" we may look back on in a few years, saying, "Can you believe we worried about that?"

But I don't think so. Call it what you will. It sounds like a mass of chickens coming home to roost.

Jon Talton is a journalist and author living in Seattle. For more than 20 years he has covered business and finance, specializing in urban economies, energy, real estate and economics and public policy. You may reach Jon Talton at jtalton@seattletimes.com