Hope is a wonderful thing, but at some point it becomes the enemy. It's hard to know exactly when a friend turns foe, especially when so many of the old rules go out the window. Hindsight, in other words, is the only true source of clarity, which leaves mere mortals like us with the thankless task of dissecting trends in real time. Good luck with that, as they like to say down at the University of Hard Knocks.

Once again, our work is cut out for us with the challenge du jour: deciding if today's update on wholesale prices reflects momentum or another irregular set of data that will soon reverse. As a preview, it's safe to say that at face value the numbers look bad. The Producer Price Index for July jumped 1.2%, the Bureau of Labor Statistics reports. The good news is that the 1.2% pace is down from June's nosebleed 1.8% rise. But that's about the extent of the positive-spin potential in today's PPI numbers.

On a rolling 12-month basis, PPI is now surging upward by 9.8% a year, as of last month. That's the highest annual rate since 1981, when inflation was universally hailed as a threat to the economy and livelihoods of the men and women in the street. It's debatable how the Federal Reserve views PPI and other pricing data these days, but it's clear what the consensus was among monetary authorities all those years ago.

Meanwhile, forget about looking to core PPI as a reason for optimism that pricing momentum isn't as bad as headline PPI suggests. PPI less food and energy rose by 3.6% for the 12 months through July 2008--the highest since 1991. As our chart below reminds, this surge in core PPI is no recent event. Upward momentum in core PPI has been building for some time. And as economic history so clearly teaches, slowing if not ending a runaway train in matters of pricing takes time; and the longer the train rolls on, the higher the economic price tag.

Considering that PPI is advancing at a time when consumer prices also look threatening suggests that now is a time for action. Why, then, does the Federal Reserve sit on its monetary hands by keeping interest rates unchanged at a 2% Fed funds rate? The answer of course can be summarized by the phrase "dual mandate." The Fed, in contrast to its European counterpart, must promote economic growth and minimize inflation.