The Fed will have a lot to grapple with today as it releases its FOMC statement.

We talked about inflation yesterday. It’s seemingly everywhere.

I saw this list in the Chicago Sun-Times today which nicely illustrates the economy’s issues:

* Home values: Down 12.7 percent nationwide in February compared with February 2007, according to the Standard & Poor’s/Case-Shiller index, out Tuesday. Chicago prices dropped 8.5 percent.

* Foreclosures: Up 112 percent in the first three months of this year, compared with a year ago. Almost 1 in every 194 U.S. households were in some stage of foreclosure, RealtyTrac reported Tuesday.

* Gas prices: $3.789 a gallon Tuesday in the Chicago area, a new record. That compares with $3.096 a year ago. Nationwide, the average is $3.607. Oil futures prices are up 74 percent from a year ago.

* Job losses: Some 80,000 jobs were lost in March nationwide. The Labor Department is expected to show another loss of 65,000 when it releases its April report Friday. The unemployment rate is 5.1 percent.

* Food prices: Egg prices have soared 35 percent in the last 12 months, to $2.20 a dozen; corn prices are up 26 percent, and rice is up 70 percent.

You have the housing deflation, which is massive. And then you have food and energy inflation, also massive.

Housing is most American’s largest asset, however. Earlier this week, one of the co-founders of KB Homes, one of the largest home builders, said he believes we’ll see at least another 20% decline in home prices.

If that isn’t deflationary- what is?

But the Fed has been flooding the world with cheap money (again.) That’s inflationary.

Will they finally stop today? And if they stop- will they start raising rates in the next few months?

Stay tuned. It’s about to get very interesting.

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?