(May 12, 2008) Let us point out the fallacy of near-term inflation, i.e., that near-term inflation is going to continue to rise because the price of oil and other inflation-sensitive commodities are continuing to rise.

Therefore even though the inflation shills agree with what the Fed is saying, that inflation is likely to come down in the second half of the year as the effects of recession become more pervasive, recession isn't a friendly place for inflation.

So why aren't we seeing near-term inflation continuing to build -- particularly with the build-up in oil?

Because oil is really the leading commodity and it is what creates the highest increase in costs.

This is happening because the consumption of oil or oil usage is falling globally.

Therefore the price of an inflation-sensitive commodity can continue to rise, but it exerts less upward pressure on inflation.

As the consumption of that item falls, and in fact this is what happens with oil, as was pointed out by Econometrics last week, we, the United States, are only 200,000 barrels per day away from rising oil prices exerting downward pressure on inflation.