The unit labor costs (wages minus labor productivity) in the fourth quarter of last year and the first quarter of this year shot up at an average annual rate of 1.6 percent — a big jump from zero growth in the first nine months of last year. That is quite a hit to profit margins that will force businesses to respond with rising prices, which always stick in a growing economy.

That is typically what happens on the way to an accelerating general price inflation.

Producer prices last month told the same story with an annual increase of 4.3 percent. They were driven by energy costs soaring at an annual rate of 17.2 percent. All that has already found its way to consumer wallets and corporate balance sheets.

The most recent business surveys are pointing to high activity levels, rising capacity constraints and slowing delivery schedules, with prices in June showing more than two years of consecutive monthly increases.

Trade disputes — if they were to lead to supply shortages and price distortions — are another problem in the current inflation outlook. Sadly, the Chinese and the Europeans are ready to fight to keep their surpluses on U.S. trades.

Speaking in the name of the EU at the G-20 finance ministers’ meeting last Saturday, France refused to even consider the American offer. The Chinese did the same thing, but much more elegantly: Beijing did not send its key trade negotiator, leaving the EU and the IMF to gang up on the U.S.

And then there is a hugely expansionary fiscal policy the Fed has to contend with. Last Thursday, the U.S. Office of Management and Budget announced that the deficit for this fiscal year, ending September 30, will come in at $890 billion — more than double the estimate of $440 billion it had published in March 2017.

How is the Fed reacting to all that?

Liquidity withdrawals are continuing. In the course of the second quarter, the Fed’s balance sheet shrank by $150 billion, showing a 3 percent decline from its year-earlier levels, but still remaining at a massive $3.6 trillion on July 18. That is a very gradual and a very cautious pace of a long-overdue “policy normalization.”

The bond markets are reacting in kind. The Treasury’s yield curve has been roughly stable since the beginning of July, with a mild tension developing on the benchmark 10-year note. The real short-term interest rate, measured by the effective federal funds rate and the CPI, is still minus 1 percent, signifying a vastly expansionary monetary policy.