High energy prices were a big contributor. As a result, to worry about inflation at this point is absurd, they argue. And Friday's bond market action suggests that fixed income investors have zero concern that inflation is back. Treasuries rose in price, which implies that traders believe the Fed will keep interest rates where they are or continue to cut them. The PPI is a very volatile statistic.
Inflation is created by too much money chasing too few goods.
And it's easy to make the case that the Fed has been printing too much money. One measure of money supplied, called M2, is soaring. It was the high 1998 spike in money supply that caused inflationary pressures that the Fed had to fight with sharply higher rates in 1999. The theory goes that companies should be able to meet all the extra demand created by the extra money without having to push up prices. But that can happen only when companies' costs don't go up too fast.