What about inflation?

Lots of other news -- the credit crunch, the big deals being discussed in mortgage-land (including a potential JPMorgan Chase-for-Washington Mutual transaction, if CNBC is to believed), and so on -- have captivated the financial markets, and for good reason. But something else is playing out in the background: Food inflation is joining energy inflation as a major bugaboo. While December import prices were unchanged on the headline, the news for 2007 as a whole was downright awful. Specifically ...

Petroleum import prices soared 50.1% last year. That was the biggest yearly increase since the 56.9% surge in 2002. Meanwhile, agricultural prices soared 23.5%. There has never been a bigger gain in the 22-year history of the import price data series.

Here's one other thing I've pointed out in previous posts: Cheap imports from China provided a nice deflationary offset to some of the inflationary forces we've faced in recent years. But now, Chinese imports are RISING in price. In fact, they gained 2.4% last year, the biggest yearly rise on record.

Bond traders have been more focused on growth than inflation in recent months. But while all Treasury prices have risen and all bill/note/bond yields have fallen, long yields have fallen a lot less than short yields. That's causing the yield curve to steepen quite a bit -- a sign that longer-term inflation concerns could come back with a vengeance once the economy stabilizes.