The Labor Department reported a modest increase in consumer prices in September. The increase in the consumer price index was .2% but it was 1.3% lower than last year.

Core CPI also rose .2% The core index excludes food and energy.

There were price increases in used cars and trucks, apparel and medical care. Energy prices climbed .8% in September.

Consumer prices rose 0.3% in December, above the 0.2% consensus estimate, but the core rate rose just 0.2%, in-line with the 0.2% consensus estimate, the U.S. Labor Department announced Wednesday.

Prices at the retail level increased at an above-average rate during 2007. For 2007, consumer prices increased 4.1% - - the biggest increase since 1990. Energy prices rose 17.4% in 2007 while food advanced 4.9%.

Meanwhile the core CPI rate increased 2.4% last year - - above the Federal Reserve's 'comfort zone' for inflation. The Fed uses the core CPI rate as the primary gauge of consumer-based inflation.

In December, energy prices rose 0.9%, gasoline increased 1.1%, natural gas climbed 2.3%, medical expenses increases 0.3%, and housing prices rose 0.3%.

Economic Analysis: A lukewarm CPI statistic. December's 0.3% CPI increase was above the consensus estimate, but the core CPI rate rose just 0.2%. The December core statistic should help convince the Fed that inflation - - while still at intolerable levels as measured by the producer price index (PPI) - - has not shown up fully yet at the retail level. That should enable the Fed to cut interest rates by 50 basis points at its next meeting, and later this winter to help stimulate the slowing U.S. economy.

While most Asian markets were tumbling today amid anxiety over the assassination of Pakistani opposition leader Benazir Bhutto, Japan brings some additional worries regarding the outlook for the world's second-biggest economy .

According to the Japanese government, consumer prices saw their biggest rise in almost a decade because of higher energy costs, while industrial production lost ground. The Ministry of Internal Affairs and Communications also reported that the core consumer price index rose 0.4% in November, which was the biggest increase since a 1.8% increase in March 1998. The main culprits for the massive increase were energy prices, which jumped 5.4%, and gasoline prices, which climbed 10.8% over the year.

Despite the fact that the nation's jobless rate saw an unexpected decline of 3.8% in November, the Bank of Japan decided to keep interest rates unchanged. A rise in consumer prices was perceived by the Bank as a sign that the country was able to surpass the deflation that Japan had to fight with over the past few years.

As I watch the retreating of prices on a selection of consumer goods I wonder where this is all going. Housing prices have dropped nationwide. Consumer electronics are sliding downward. The "big three", Ford Motor Company (NYSE: F), Daimler Chrysler (NYSE: DCX) and General Motors (NYSE: GM) are reducing sticker shock to the customer. Sure, these are nice things relative to the bottom line as consumers, but is this the signal of hard times to come? If I was seeing an overall increase of incomes at the same time as these price declines I'd be more excited about the "recession". Although the government says we're earning more, at ground level I just don't see it.

No, what I think is happening is the rising of a monster that I have feared for quite some time. We have lost such a significant share of the world's manufacturing output relative to our population that our economy is adjusting itself to compensate for the losses of those well-paying jobs. Don't let Washington fool you. Just because they say employment numbers are good doesn't mean you can sleep better tonight. When it takes three employees in the warehouse at a retail outlet like Best Buy (NYSE: BBY) to earn the same income as one dude used to earn building cars or vacuum cleaners, that's a sad state of affairs. Those three warehouse workers won't be buying flat screen TVs. The auto worker could have bought a couple of them.

Will our government wake up and send word to the World Trade Organization that we're starting to get a bit edgy over here? Maybe I'm wrong, but I think the WTO is a major obstacle to our success. They hold us to marketing price structures that are unrealistic by instituting tariffs and controls that strangle real free trade. At the same time, they refuse to have a hand in requiring the implementation of solid requirements regarding the compensation and treatment of the world's work force. Add in the inability of our own governments, both federal and state, to control spending and the continued upward spiral of out-of-control taxation and you have an economy that is being held hostage to the whims of a limited and scary percentage of power mongers. What can we as wage earners and consumers do about all this?

I'm open for suggestions.