AS AN economic storyline, inflation has lost some of its glamour over the past few months, making room for financial collapse, looming recession, and continued pain in housing markets. That doesn't mean it's gone away, or that continued price increases won't create a serious problem for the Federal Reserve and the broader economy somewhere down the road.

I have watched the numbers roll upward on the sign at my neighbourhood petrol station for ages now. But, in keeping with the language common in price index press releases, the rise in goods costs didn't much extend beyond that. In just the past week, however, my local coffee and sandwich shops, independent of each other, adopted across the board price hikes. When I discovered the jump at the first business, I was irked. When I learned of the increase at the second, I shrugged and concluded that this would be the way of things for the near future.

In other words, my expectations adjusted, and I'm not the only one experiencing such a shift in perception. As consumers get more used to the idea of price increases, other businesses will realise that they, too, can get away with a hike without suffering much in the way of consumer blowback. Recession or no, consumers will only stomach so many increases in prices before demanding wage increases to compensate. Employers may well grant them, concluding that they can make up the expense by raising their prices, a practice consumers will have come to expect and accept. And on the spiral goes.

Eventually, these expectations will have to be wrung out of the system. That will mean an increase in interest rates and yet another economic slowdown. At the moment, of course, the Federal Reserve rightly feels that it cannot afford to take such measures, given the fragility of the economy and the financial system. But the problem is growing, and the longer the central bank waits to deal with it, the more painful will be the squeeze at the end.