The U.S. housing market continued to show weakness in the latest reading. Here are the Commerce Department's latest numbers:

• Housing starts dropped 10.5% to 529,000 units. The expected number was 600,000.
• Groundbreaking for single family homes fell 6.8% last month to an annual rate of 476,000 units.
• Starts for multifamily homes fell sharply to a 53,000 annual pace, a drop of 34.6%.
• Compared to October last year, housing starts fell 30.7%.

What could complicate the U.S. Federal Reserve's job to boost the economy? The price of oil. That's correct: the price of crude -- the world's most important commodity.

The reason? The impact of a high price of oil on prices throughout the U.S. economy.

Just call them dueling worldviews, or outlooks. In one corner is economist Joseph Stiglitz, who sees deflation as the primary threat to the U.S. economy, in the quarters ahead.

"Deflation is definitely a threat right now," Stiglitz, an economics professor at Columbia University, told Bloomberg News. "The combination of the deflation threat and the sluggish recovery should keep the Fed on hold for quite a while."

In another sign of how companies have been forced to adapt to changing economic times, the average price for an American hotel room dropped 17% (year-over-year) during the first six months of 2009.

The average traveler booking a room in the U.S. can now expect to pay $115 a night, down from $139 during the first half of 2008. New York City and Washington D.C. were the priciest destinations on the list, although Las Vegas is the most popular destination. Gaming fans can grab a room in Sin City for an average of $82 per night.

John Crudele over at The New York Post writes about yet another hidden consequence of the Cash For Clunkers program: "... the folks at the US Bureau of Labor Statistics confirmed to me that the subsidy received by those 800,000 car buyers will be handled in the CPI next week as if the price of a car fell by $4,500."

Let's be very clear: This is one of the dumbest things in the history of the United States.

How the hell can you possibly count a taxpayer-funded subsidy as free money and use it to show that the cost of cars fell?

On Tuesday, the Federal Reserve's FOMC holds two-day meeting on interest rates and will announce its decision on Wednesday. The Fed's Ben Bernanke will still be out and about this week, discussing the failure of Lehman Brothers later today, and ending up the week speaking at the Independent Community Bankers of America National Convention and Techworld.

Manufacturing will be in focus this week, starting with industrial production numbers for February and the Empire State Manufacturing Survey Diffusion Index for March scheduled to be released Monday morning. Tuesday morning will bring us the Producer Price Index for February, and Thursday morning comes the Philadelphia Fed Outlook Survey -- Diffusion Index Manufacturing for March.

We live in the craziest, upside down world you can imagine. In years past at rise in consumer prices threw the markets into a panic, signaling that inflation was rising a getting out of control. But that was then and this is now.

Today the Labor Department said that the consumer price index rose .3% after dropping .8% in December. Voila! The inflation news is now good news. Why is inflation good news? It is good news because it means that we are not deflating. Even Bernake said that we simply cannot have deflation. He stated an inflation goal of 1.5% to 2% for the coming years. You see in this upside world, deflation is when prices fall, and since we don't want that, we now love it when prices rise -- that's inflation.

Among all the negative economic data that came out last week was a positive surprise: retail sales were higher in January. A fluke or a glimmer at the end of the tunnel? That may depend on whether we see any positive surprises arising from items on this week's economic calendar:

• Consumer Analyst Group of New York Conference: Monday through Friday
• NY Empire Manufacturing Index (Feb. 2009): Tuesday, 8:30 AM
• NAHB Housing Market Index (Feb. 2009): Tuesday, 1:00 PM
• Fed's Bullard speaks before National Association of Business Economists: Tuesday, 1:00 PM
• Housing starts (Jan. 2009): Wednesday, 8:30 AM
• Fed's Pianalto speaks before Commercial Developers Power Breakfast: Wednesday, 9:00 AM
• Industrial production (Jan. 2009): Wednesday, 9:15 AM
• Fed's Bernanke speaks before National Press Club Luncheon: Wednesday, 12:30 PM

Worried about inflation? Cross that concern off your list, at least for the immediate quarters ahead.

Inflation at the consumer level remains lame, after consumer prices fell 0.7% in December 2008, the U.S. Labor Department announced Friday, driven lower by an 8.3% plunge in energy prices and an 0.1% decline in food prices.

Even more important, for the year, consumer prices increased a minuscule 0.1% -- the consumer price index's smallest increase since 1954, when the CPI increased 0.7%.

Economists surveyed by Bloomberg News had expected consumer prices to decrease 0.9% in December 2008, and 0.2% for all of 2008.

Economist David H. Wang told BloggingStocks Friday that even though massive amounts of dollars are being added to the U.S. economy via monetary policy and various stimulus packages, investors have to remember an enormous amount of money has been destroyed as a result of the financial crisis and the U.S. recession.

I sure am tired of writing about bad news. That's why I was happy to read this morning that the consumer price index (CPI) tumbled by a record 1% in October. In the last 61 years, there has never been a bigger monthly decline in the CPI. The cause? You guessed it -- a huge drop in gasoline prices.

But wait, there's more. Core inflation -- the Fed's favorite measure, which excludes "volatile food and energy" prices -- also declined for the first time in 25 years. The core consumer inflation decline was 0.1%. The numbers are not a big surprise after yesterday's wholesale inflation report.

The drop in prices across the board is great news for people with money. After all, it means they can spend less of that money to buy what they need. But the reason for the drop in prices is very ominous for the future of the economy. That's because companies have overproduced and they now have excess supply gathering dust on their shelves and showrooms.

Most investors / readers know about inflation -- an increase in the price of a good or service not connected to an improvement.

But fewer know about its flipside -- deflation -- a decline in prices.

Moreover, while inflation is a serious problem -- it erodes purchasing power and makes it hard for businesses to project and plan for costs, moving forward- - deflation is an even bigger menace.

That's because deflation decreases the amount of money flowing to businesses for their products/services, reducing the money needed to keep commercial activity alive and the economy growing.

Deflation: a danger sign

Don't misunderstand: a price cut after a company becomes more-efficient, or implements a 'holiday or promotional' sale, is fine. Deflation is different: it's pervasive price cutting and asset price declines -- falling prices across the product/service spectrum -- usually driven by a lack of consumer / wholesale demand.

Further, if deflation persists it can, you guessed it, lead to lay-offs. Companies and factories with lower revenue and demand for their products / services scale-back production to reduce expenses by laying-off employees. Those laid-off employees then cut expenses as they search for new work assignments by cutting spending, resulting in even lower demand for products, further price cuts, and lower company revenues, and a vicious cycle can ensue.

A basket of 16 basic food items costs $48.68, up 10.5% from a year ago, the American Farm Bureau Federation said in a press release that marketwatch.com covered on Friday.

Economist David H. Wang told BloggingStocks Friday many factors are driving grocery prices higher, including higher ingredient costs, higher energy prices, and rising demand for food in developing countries around the world (especially China, India, Russia, Brazil, and the Middle East).

A few grocery store tips:

Wang says that while there are many savvy shoppers in the states, many others are new to shopping. Wang, who worked in a grocery for three years while in college, offered his tips on how to lower your grocery bill:

• Stick to a shopping list and shun 'impulse' buys: Wang says this is perhaps the biggest money saver. "From the moment you walk in the store, grocery stores are designed to get you to buy more items than you plan to buy," Wang said. "You are bombarded with stimuli that tempts you to spend, and it works, so stick to your list. If it's not on the list, ask yourself if you need the item, or are buying merely on impulse."

• Coupon card: Most grocery chains offer a coupon card that automatically deducts for items on sale. Sign up for one and use it. But evaluate the coupons some cash registers dispense with a sales receipt. "Ask yourself if you need it or if it is on your list," Wang said.
  

• Evaluate buying in bulk. "Buying larger sizes usually lowers cost per food purchased but ask yourself if you will need and use the item," Wang said. "If the item is not your list, don't buy it, as you could be succumbing to an impulse buy, which will drive your food bill up."

So much for the slower global growth story dictating the price of oil.

Oil rocketed up more than $10 to $115 Monday after traders concluded that the U.S. Government's bailout to stabilize the financial system will both increase U.S. borrowing and inflation, and many also stimulate the U.S. economy.

"This market is wild, just wild," Energy Trader Jim Dietz told BloggingStocks Tuesday afternoon. "Everyone's throwing the slower global growth story out the window right now and seeing only more dollars out there from the [U.S.] Treasury." Dietz added he was currently long with oil and heating oil, with monthly contracts.

Oil rose $10.70 to $115.25 per barrel in heavy trading. Earlier today, oil trading in the electronic portion of trading, but not in the open outcry portion, was suspended for 5 minutes after it reached 10% move limit.

The other, major energy commodities also jumped Tuesday afternoon. Unleaded gasoline rose 10 cents to $2.69 per gallon, heating oil climbed about 17 cents to $3.06 per gallon, and natural gas gained 11 cents to $7.65 per million BTUs.

Oil surged back over $100 Friday after traders sensed the U.S. Treasury / U.S. Federal Reserve's plan to stabilize the financial markets by buying-up distressed / bad mortgage debt could very well boost inflation, increasing the attractiveness of oil as an inflation hedge.

Oil rocketed up $4.91 to $102.79 per barrel Friday morning. The other major energy commodities also jumped Friday. Unleaded gasoline rose 9 cents to $2.57 per gallon, heating oil climbed about 10 cents to $2.88 per gallon, and natural gas gained 11 cents to $7.72 per million BTUs.

Energy Trader Jim Dietz told BloggingStocks Friday slowing global economic growth that's likely to slow the increase in global oil demand is the oil market's long-term concern, but short-term the focus is on inflation.

"I haven't seen the details of the [U.S.] Government's plan yet but there's three ways we can pay for it. We can increase government spending, print money, or sell government bonds," Dietz said. "The first two can increase inflation quickly, the last one, not as quick, but either way, there will be some increase in inflation, which is why traders are buying oil. Inflation now will jockey with global growth concerns to determine the direction of oil's price."

There is an often-repeated joke in economists' circles that goes: Inflation is low, if you exclude food and energy prices. And of course, no one buys food or energy . . .

The above is a critique of the U.S. Federal Reserve's use of core inflation -- which excludes food and energy prices -- as a measure of lasting price changes in the U.S. economy.

Critics charge, "inflation is the sum of all products / services consumers use, not solely a portion." In essence, they argue that the Fed is underestimating inflation, creating a distorted picture of price conditions people face daily.

Still, a new research report by Michael Kiley, a Federal Reserve economist, supports the Fed's continued use of the core inflation metric. In Estimating the common trend rate of inflation for consumer prices and consumer prices excluding food and energy prices, Kiley's research reinforces the theory that total inflation historically contains more temporary changes in prices -- i.e. changes that could disappear -- than core inflation, thus supporting the continued use of core inflation.

In other words, core inflation is used by the Fed because it has been deemed a more-accurate predictor of long-term price changes or 'inflation over time' than total inflation, sometimes also referred to as 'headline inflation.'

Economist David H. Wang said he's by-and-large in agreement with Kiley's conclusions. "Core inflation is more indicative of long-term price changes. The problem occurs when you have periods of large price changes in food and energy, such as today, which pushes total inflation way up. Then the cry occurs that the Fed is not measuring inflation accurately," Wang said.