It started showing up last quarter and as each quarter passes it will only be increasing. Uncle Ben has now assured us for nearly a year now that as he slashes rates and gives up the fight against inflation (which the Fed was citing as a concern as recently as July 2007) that there is nothing to worry about because a weakening US economy will eradicate inflation in America. So far so good, as even the government reports are now having a difficult time hiding inflation. What is amazing is almost every economist agreed with Ben last fall - inflation was not a real issue; that was something those simply alarmist bloggers who don't understand economics tried to scare you with. Ah yes, a whole generation of people who do not take a global view and their whole universe centers around the US of A. Nothing exists outside our borders.

• Prices for a quart of milk, a plane ticket and a host of other products rose in June at nearly the fastest pace in a generation -- yet another economic shock wave that alarmed analysts and took a bite out of the buying power of Americans.
• Consumer prices are up 5 percent over the last 12 months, the fastest one-year change since 1991. (hold on while I chuckle at that "5 percent")

Inflation is a tax on all things, producers and consumers. We say this every week. People were asking me last winter "where is this inflation you talk about". I said, just wait. The really bad thing is inflation is a lagging indicator meaning what we see today is not reflecting the full tidal wave coming from the energy and food costs. Inflation in things we need - deflation in things we want. What an interesting situation.

But never fear - the Federal Reserve does not fear a return to the 1970s because this time around unions are weak and workers are neutered - they cannot ask for the type of wage increases they did in the 70s - which led to a wage-price spiral. That's great news! For the Fed. For you? Not so much.

• As prices rose last month, take-home pay took a hit. Adjusting for inflation, weekly wages fell 0.9 percent in June, the third straight monthly decline and the biggest drop in almost four years.

Translation - prices are increasing in things you need. But your wages are falling in real terms - so you are getting poorer at an accelerating rate. But leadership loves this because eventually you will become so poor you won't be able to afford things. And then corporations will be unable to force higher prices through the system so they will be forced to lower them. Which means their profits will go from pressured to collapsing. Which will be good for the stock market how? ;) This is called the "nuclear solution" in my view. Make Americans so poor in real terms that they cannot pay for anything - that will solve the inflation riddle :) Instead of say, raising rates and giving savers a life boat... nope, that would hurt the banks and we cannot have that.

Anyhow I digress - the situation is so bothersome and as long time readers know, I've warned about this for a year, so to see it playing out is just sad. Let's look at tomorrow's slate of earnings

A whole lot of banks report - again the bar has been set so low if most just say "we plan on keeping our doors open another 3 months" we could see rallies in some of these. Best of breed of tomorrow's group is JPMorgan (JPM). Merrill Lynch (MER) also reports and that one could go either way - not in very good shape but so beaten down anything can happen.

Fund holding Blackrock (BLK) - this one has been impacted more by the potential selling of a stake by Merrill Lynch (MER) than anything else these past few weeks

Credit card company Capital One Financial (COF) - always like to see how defaults are acting in this economy. Hint - they'll be higher as the US consumer spins into the abyss (see real wages falling above) But! This is exactly the type of heavily shorted company that can rally on "better than expected" i.e. we expected putrid and we got awful! Buy those shares!

Evergreen Solar (ESLR) - we decided we need to begin to take these guys seriously after $2 Billion worth of orders came through in the past month.