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The economic news isn't getting any better, as inflation continues to take a big bite out of the economy. Some of the fastest rising prices are in consumer staples like medicine, food and energy. Wholesale inflation is growing at its fastest level since 1981, increasing by 7.4 percent over the last 12 monnths.

The private research group "Conference Board" said consumer confidence fell in February to 75, which when excluding the Iraq War in 2003, is the lowest in 15 years. Expectations were the figure would be at around 81. Just in December the index was at a much higher 90.6.

According to government figures, the Producer Price Index also rose by 1 percent in January, with core inflation rising 0.4 percent. Core inflation is inflation measured without food and energy costs figured in.

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Confidence Plunges, Inflation Rate Soars

In more bad economic news, consumer confidence and home prices posted sharp declines while higher costs for such basics as food, energy and medicine left wholesale inflation rising at a pace unseen since late 1981.

The new reports Tuesday documented the latest in a series of blows to the economy as a prolonged housing downturn has pushed the country close to a recession.

Housing Problems Adding Up

On Tuesday Wall Street was hit with news that the decline in U.S. home prices in 2007 accelerated in the fourth quarter. The quarterly S&P/Case-Shiller home price index dropped to 170.6, from a revised third-quarter reading of 180.3. Foreclosures also jumped, up more than 50% in January on a year-over-year basis. A reading on consumer confidence in February came in at 75.0, sharply below the 82.0 analysts had predicted.

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Consumer Sentiment Dropping Even More

Consumers are more negative about current business conditions and the job market than they were a year ago. They're also downbeat about the short-term future, with a greater proportion expecting business conditions and employment to deteriorate further in the months ahead.

Data also showed the expectations index fell to 57.9 -- a 17-year low -- from a revised 69.3 in January. The January level was originally reported as 69.6. 

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Is US Economy Facing Stagflation?

Inflation, which tends to be spurred by economic expansion, usually subsides during periods of weak or negative economic growth. High inflation and low growth, a highly undesirable combination known as "stagflation,"  is something the United States has largely avoided since the 1970s, when disruptions in oil supplies constrained U.S. economic growth while stoking inflationary pressures.

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Gas Prices also Surging
 
Gas prices are up almost 20 cents over the past two weeks with the national average price now at $3.14. The increase leaves the price of regular self-serve gasoline almost 70 cents higher than the average price this time last year.

One month ago regular self-serve gasoline sold for an average nation price of $2.99 and one year ago a gallon of regular cost $2.30.

The big jump in prices is linked directly to international oil prices according to industry analyst Trilby Lundberg. "It is entirely from rising crude oil prices," she said.

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