If you're at a party and the subject of the economy comes up, it's easy to sound like you know what you're talking about: Just drop the phrase "the return of stagflation" — a phenomenon not seen, and not missed, since the 1970s and early 1980s. With unemployment and gas prices climbing, you're not likely to get an argument.

Even Ben Bernanke is paying heed to that concern. This week, the Fed chairman pledged that "we will not countenance building inflationary expectations."

That wasn't universally reassuring. His comment added to worries that, having let inflation emerge, the Fed will now take steps that are a) too late to head it off but b) just in time to squeeze any remaining life out of the economy. So we'll be left with the dismal worst of both worlds.

Given negligible recent growth, the economy can already be described as stagnant. But as with a ham-and-cheese sandwich, one ingredient is not enough. To get stagflation, you also need inflation. And contrary to popular impression, that has yet to show itself.

For months now, Bernanke and Co. have been trying to stimulate lending by cutting interest rates. In normal times, that can be inflationary. But these are not normal times.

Because of the mortgage crisis, banks are inclined to cut back on loans, which means a shrinkage of the money supply. To counter that contractionary effect and try to avert a recession, the Fed had to use expansionary tools. If it's got the balance right, the result will be that inflation won't rise or fall but stay the same.

Critics insist that the Fed has surrendered on inflation, pumping money out in a desperate attempt to prevent a full-fledged downturn. Exhibit A in the charge is the weakness of the dollar. Bernanke's detractors say he's let the greenback sink, which in turn has pushed up the price of oil and doomed us to the sort of inflation we haven't seen in a long time.

But the theory and the evidence find themselves at odds. The dollar has actually been stable over the last three months, both against the Euro and against other currencies. Three months ago, however, the price of oil was below $100, and lately, it's been above $130. A dollar that's not declining can't explain why oil prices are rising.

If the dollar were steadily losing value, another commodity should also be soaring in price — namely gold, the traditional haven for the inflation-wary. In fact, gold, which came within sight of $1,000 per ounce back in March, has been trading well below $900.

Nor has inflation spread across the rest of the economy. The core rate, which excludes food and energy, has been eerily consistent for a long time. In April, the annual core inflation rate was 2.3 percent higher than a year before. In April 2007, it was up 2.4 percent. In April 2006, 2.3 percent. A year before that, 2.2 percent. Whatever the Fed was doing right before, it seems to be doing still.

It may seem absurd to omit two hugely important categories like food and energy. The reason for leaving them out is that they are notoriously unpredictable and can suddenly climb or plunge for reasons having nothing to do with how much money is in circulation.

You can get high energy or food prices even when inflation is in check. But you can't get high prices everywhere else unless the Fed is pumping too much money into the economy for an extended period of time.

Rising costs at the pump and the grocery are a major problem. But the problem is not inflation. It's that worldwide demand for some key commodities has risen faster than supply. Unlike inflation, which tends to feed on itself, supply and demand changes tend to be self-correcting.

That's why it makes sense for Bernanke not to get too wrought up about $4 gas. The Fed's job is not to maintain price stability in any specific good or service, which no central bank can hope to do. It's to maintain general price stability — preferably while keeping the economy growing at a healthy pace.

So far, the Fed has managed to keep inflation in check, and it's done so without strangling the economy. These may not be the days of wine and roses, but the 1970s never had it so good.

Steve Chapman blogs daily at newsblogs.chicagotribune.com/steve_chapman. To find out more about Steve Chapman, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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