It turns out the Fed was right and Wall Street was wrong. Inflation is a real threat, big enough to impact consumers more than previously thought.

The Fed was heavily criticized for not lowering short-term interest rates more than 25 basis points, and now it's probably glad it didn't.

The Labor Department reports that wholesale prices rose 3.2% in November -- that's the biggest growth since August 1973.

Not surprisingly energy costs are also at record highs. Since 2002, the cost of oil has more than tripled. The only surprise is that higher energy costs haven't worked through producer prices sooner.

The trouble is, the consumer is already overburdened with the responsibility to keep the economy going. We've been at zero savings for nearly three years. We're defaulting on our homes and we're starting to default on our credit cards, too.

Just when credit is about to get more expensive.

That's the worst news possible for housing.

Thanks to federal interference, money is about to flow a little easier, but that won't offset higher interest rates.

That means more pressure on buyers and sellers.

Keep in mind we're having a housing recession while mortgage interest rates are at near record lows.

This time, borrowing rates aren't going to save the day. The only thing that will help more houses change hands is less inventory and lower prices.

If you're a seller, get ready to negotiate, and stop thinking of your home as your ATM and retirement fund.

Buyers, get off your backsides. The cost of credit is not going to get better for a long time, if at all.

And Realtors, stop taking overpriced listings. You'll be doing your market a favor. The sooner houses start moving, even at lower prices, the better for all buyers and sellers down the road.

Published: December 20, 2007

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