If there wasn’t a looming recession in the US, market analysts, economists and other urgers would be baying for the Fed to lift rates after the country’s consumer price index produced the biggest annual rise in inflation for 17 years.

The rise in inflation over the year was 4.1%, the highest since the 6.1% jump in 1990. Still, this wasn’t as high as the 4.3% year on year rise in November, generated by soaring energy prices.

In normal circumstances we would probably be seeing a Wall Street slump as investors sold shares on the assumption such an inflation performance would result in an interest rate hike at the end of the month. In fact rates would have risen at least twice in the back of 2007 with that sort of price pressure, even accounting for the nature of the rises, coming from energy and food costs.

The yearly rise in core inflation was 2.4%, probably higher than the Fed would prefer. But the quarterly core inflation rate rose to 2.7% in the final three months of the year, maintaining the rising trend over the course of 2007. That continuing rise is the real concern as price pressures are clearly not easing.

Even though the Fed is going to cut interest rates by half a per cent, it will keep an eye on the way consumer prices move: the upward pressure on food costs could emerge as the big unknown factor as the Presidential election revs up later in the year.

As much as economists strip out non-core items like food and energy costs from their assessment of prices, voters will put them back into their equation, as will presidential candidates. And that will make life tough for the Fed and others who will have to battle those perceptions, as well as the reality of the economy’s slide.

The CPI rise was completely the opposite to the surprise fall in December’s Producer Price Index, which was the only bit of good news for the US this week after retail sales fell 0.4% in December.

With the US economy on the verge of stalling into recession, it raises the prospect of stagflation, where inflation is high and growth is nominal.