In the old cartoons, when there was a Genie in the bottle, it was always a dubious thing to let it out.

Yes, you might have gotten three wishes from the Genie.

But something always went wrong in the cartoons right?

The “wish” always ended up with unintended consequences.

Such is the case now that the Inflation Genie is out of the bottle. The March PPI (producer price index) was 1.1%. It was up nearly 7% year-over-year.

No- I’m not going to strip out food and energy (as some pundits do) as that’s a joke. We’re all eating and driving.

It’s been over 30 years since we’ve seen the Genie. Most people don’t even know what the Genie looks like.

For the first time, there was an Op-Ed in the Wall Street Journal today asking the Fed to stop cutting interest rates given the effects on inflation which is leading to things like spiking food prices around the world (and now the riots in countries like Haiti.)

As America “saves” its housing market, others go hungry around the world.

Yes- unintended consequences.

You can also see inflation’s long arm here in the United States as gas prices spike. Also some fixed income people are going without eggs and eating less bread.

So far, there hasn’t been riots in the United States.

But the Genie usually doesn’t go back into the bottle easily. He wants to stick around and play. He wants you to have your three wishes.

We are perhaps on Wish #1: please save the housing market

What will be Wish #2?

Prepare yourself. There’s a reason the Genie is rarely out of the bottle.

Barron’s had an interesting small article in this week’s issue called: “Looking Behind the CPI Curtain.”

We think of inflation being everywhere as food prices, metals and crude soar. But is it? One of my friends just got a 38 inch flat panel tv for only $800. It was certainly more expensive only a year ago.

The article states the following prices are rising:

Eggs up 32%
Bread up 10%
Tomatoes up 19%
Gasoline up 29%
Air Fares up 10%

But prices are actually falling on these items:

Household furnishings down 0.7%
Apparel down 0.3%
Televisions down 18%
Photographic equipment down 7%
New cars down 0.4%
Personal computers down 14%
Computer software down 6%

The problem with these lists is that the items we use everyday are on the list of prices going higher. Many of us can go years without buying a car or a new computer but we fill up our cars every week.

Hence, the Feds dilemma. Inflation is clearly heating up in the economy. And if the Fed keeps cutting, it could get worse.

Stay tuned.

Commodities are on a tear. I’ve talked a lot about commodities in the past year or two and in that time period they have continued to push higher.

We are now seeing the results of those increased prices in the inflation rates across the globe.

Chile has a 6% inflation rate.

Australia is now over 4%.

China saw an 18% rise in food prices in January and a 7.1% overall inflation rate (mainly due to the nasty snowstorms that shut down most of the country.)

Poland’s inflation rate was 4.3% in January and economists expect it to remain above 4% through at least the first three quarters of the year (their growth rate, by the way, was 6.5% in 2007 and was expected to “slow” to 5.5% in 2008.) Despite the slowing growth rate, inflation was expected to remain stubbornly high.

Why?

Oh, $100 crude. $14 soybeans. $930 an ounce gold. $17.50 an ounce silver. Sugar prices that are spiking. More expensive corn. Record high wheat.

These are the things that people need the world over.

Apparently, in the United States, there is no inflation because our houses are declining. Our flat-screen tvs are cheaper. They just reduced the price on the iPhone.

Food is skyrocketing? Ho-hum. Who eats anyway?

I don’t see how there is a global economy and how every other country can experience inflation but the United States does not.

It’s impossible.

There’s only one direction interest rates are headed: and it’s up. Financial crisis and credit crisis be d*mned.

The inflation genie is out of the bottle. Question is: how much havoc will he play before he is stuffed back in again?

The Federal Reserve has decided to lower interest rates in the past two weeks in order to pump liquidity into the system because the banks “miscalculated” the risk in their mortgage holdings.

The government has repeatedly said that they are watching inflation but that it does not pose an imminent threat.

It’s funny that it seems to be threatening just about every other nation and, oh yes, a lot of companies too.

South Africa’s Federal Reserve is meeting this week to decide its interest rate policy. They will likely keep rates as they are because:

The Reserve Bank has lifted its key repo rate by 400 basis points since June 2006 to 11 percent as it fights to bring down targeted CPIX consumer inflation, which jumped to 8.6 percent in December, breaching the upper end of a 3-6 percent band for the ninth straight month.

Poland actually had the guts to raise their rates this week:

Poland’s Monetary Policy Council (MPC) raised interest rates on Wednesday as expected to try to curb rising inflation despite signs of a slowing economy and is likely to further tighten monetary policy ahead.

The MPC raised the central bank’s main rate by 25 basis points to 5.25 percent and said in a statement it saw inflation above 3.5 percent in the near term with risks to further acceleration of wage growth.

Of course, Poland is also seeing growth rates around 6.5% which might have something to do with their inflationary biases.

Then there is Chile. Their inflation rate surged to 7.8% in December. Chile keeps raising its rates but still it can’t contain the inflation. From Bloomberg:

“Inflation is a worry in Chile and depending on how it evolves, the central bank may need to raise rates further in the first half of this year,” said Bertrand Delgado, a Latin America economist at IDEAglobal Inc. in New York.

It’s not just countries that are seeing the increases either.

Hershey’s, the chocolate maker, just announced across the board 3% increase on all of its goodies. And it gets better. From the WSJ:

In a conference call with investors yesterday, Hershey Co. Chief Executive David West said the candy maker has seen “an unprecedented run-up in costs over the last couple of years.”

Hm…”unprecedented.” Where have we seen that word before?

Oh yeah, the Domino’s Pizza CEO said the same thing just a few weeks ago.

And Kraft Foods. Cheese prices rose 50% in just the last quarter alone. From their conference call yesterday:

Irene Rosenfeld, chairman and CEO, said: “We’ve significantly reduced our cost structure and strengthened our portfolio with the acquisition of Danone’s global biscuit business and the announcement to exit the Post cereal business. While we face an unprecedented input cost environment, we enter 2008 with good momentum and remain confident that we will deliver reliable growth over the long term.”

Tyson Foods just sent notice to its food-distributors that it was pushing through a 7 percent across the board hike.

And on and on and on.

You get the picture.

And what is our Fed doing?

Cutting interest rates.

Please let me know when your cheeseburger is $20.

Oh, but remember, we don’t have inflation here. That only happens in Poland. Or Chile. Or South Africa. Or Australia. Or China.

Not in America.