In advance of tomorrow’s report on consumer prices that has the potential to offer a few surprises given the recent surge in the cost of gasoline, clothing, and other essentials, Amity Shlaes files this report at Bloomberg about how inflation has a way of coming about suddenly and, once it does, can be very difficult to stop.

A little is all right. That’s the message Federal Reserve Chairman Ben S. Bernanke has been giving out recently when asked about the evidence of inflation in the U.S. recovery.

Sometimes Bernanke doesn’t even go that far. He simply says he doesn’t see inflation. The Fed chairman recently described the prospects for price increases across the board as “subdued.”

“Sudden” is more like it. The thing about inflation is that it comes out of nowhere and hits you. Monetary policy is like sailing. You’re gliding along, passing the peninsula, and you come about. Nothing. Then the wind fills the sail so fast it knocks you into the sea. Right now, the U.S. is a sailboat that has just made open water, and has already come about. That wind is coming. The sailor just doesn’t know it.

“Sudden” has happened to us before. In World War I, an early version of what we would call the CPI-U, the consumer price index for urban areas, went from 1 percent for 1915 to 7 percent in 1916 to 17 percent in 1917. To returning vets, that felt awful sudden.
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History has other examples. In 1945, all seemed well: Inflation was 2 percent, at least officially. Within two years that level hit 14 percent.

All appeared calm in 1972, too, before inflation jumped to 11 percent by 1974, and stayed high for the rest of the decade, diminishing the quality of life for whole cohorts.

The fact that financial repression is now official government/central bank policy and that it’s been more than a generation since we’ve seen high official rates of inflation in the U.S. will surely make dealing with rising prices even more difficult this time around.

Also, this ominous warning was offered:

The greater the denial before, the faster the inflation accelerates after.

Yikes! Suddenly, tomorrow’s CPI report seems a whole lot more interesting…

In the years ahead we’ll probably hear a lot more about the Federal Reserve’s new “flexible inflation targeting” approach as it relates to their deliberations on monetary policy and this Bloomberg story by Fed watcher Craig Torres gives us a preview of what we’re likely to hear this spring, that is, if gasoline prices wind up where nearly every analyst thinks they’ll be.

Federal Reserve Chairman Ben S. Bernanke spent six years pushing for an inflation goal. Now that he has it, some investors are betting he’ll breach the 2 percent target in the short run to lower unemployment.

The Fed chairman told lawmakers last week that an increase in energy costs will boost inflation “temporarily while reducing consumers’ purchasing power.” He also said the central bank will adopt a “balanced approach” as it pursues its twin goals of price stability and full employment, which it defines as a jobless rate of between 5.2 percent and 6 percent.

“The chairman seemed to suggest they will tolerate a misdemeanor on inflation as unemployment continues to fall toward their goal” over several years, said Mark Spindel, chief investment officer at Potomac River Capital, a hedge fund that manages $250 million in Washington.

Policy makers at a March 13 meeting probably won’t deviate from their commitment to hold interest rates close to zero at least through late 2014, even if their forecast shows a burst of energy-driven inflation, said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. They’ll probably be more concerned that rising prices will hold back real spending, impeding growth and improvement in the job market, he said.

“The chairman said, ‘We think it is transitory, we are sticking to our guns, we are going to focus on the drag on income,’” Crandall said. Bernanke explained how under a strategy of flexible inflation targeting, “a temporary spike in the price indexes can be a reason for the central bank to be more generous rather than less,” Crandall said.

What’s funny – well, that is, unless you happen to be a senior living on a fixed income – is that the Fed’s own projections for unemployment paint a pretty grim picture of what the U.S. labor market will look like going forward, meaning that, this “flexible approach” to balancing their stable prices/low unemployment mandate is likely to result in higher inflation, perhaps much higher inflation.