They Used to Call it Stagflation

Now they just wish it away.

Yesterday, the Rocket scientists in the White House had this to say about the recent surge in Oil prices:

Higher oil prices caused by unrest in the Middle East and North Africa are not at a level where they would derail the U.S. economic recovery, White House economist Austan Goolsbee said on Wednesday.

"Thus far, they're up, but we're not forecasting -- and you haven't seen the private forecasters forecasting -- that at these levels they would derail the recovery," Goolsbee said in a conference call discussing the president's annual economic report, which was released on Wednesday.

Meanwhile,later in the day some folks who've actually taken a Macro-Economics course and--even more importantly live and work with the rest of us in the real world--noted the effects that are already seen:

Rising energy prices threaten the global economic recovery, a big reason the stock market and prices of non-energy commodities have tumbled in recent days. Economists estimate each 1 cent increase in gas prices takes $1 billion out of consumers' pockets, making it the ultimate "tax" on Americans already struggling with high unemployment and falling home prices.

Here's a sample of how higher energy costs are hitting consumers from a variety of angles:

Gasoline prices: Average prices at the pump rose to $3.23 Thursday, the highest level since September 2008, according to AAA. Gas prices have jumped more than 7 cents per gallon in the past week and have already risen more than 7% so far in 2010, or about 30 cents per gallon.

Heating Oil: U.S. heating oil futures hit their highest level since late 2008 Wednesday ahead of key inventory data due out today. With much of the country suffering through a winter of extreme cold and frequent snowfall, there's no relief in sight for homeowners on the heating front.

Airfares: Airlines have already increased their fares four times this year vs. just three times in all of 2010, The NY Times reports. For every dollar that the price of oil rises, airlines face $1.6 billion in increased costs, Giovanni Bisignani, director general of the International Air Transport Association said in a speech in Tokyo earlier this week.

Your 401(k): Thanks to a two-year rally in financial assets and continuing contributions, the average balance of 401(k) managed by the Fidelity hit the highest level in 10 years, the mutual fund giant reported earlier this week. But that was before the Dow suffered its worst two-day decline since August; stocks, which still make up the bulk of most 401(k) plans, appear headed for another losing session Thursday.

Food prices: Higher transportation costs are likely to keep upward pressure on global food prices, which have risen dramatically in recent months. There is concern the unrest in the Middle East will prompt governments around the world to horde food supplies and raise subsidies in order to keep local food prices down and preempt unrest. However, wheat, corn and soybean prices have fallen sharply in recent days as the geopolitical uncertainty has spooked commodity speculators.

The Dollar: You might think higher energy prices would get the Federal Reserve worried about inflation, but that's not how Ben Bernanke is likely to see it. In fact, the threat higher oil prices pose to the economy might make the Fed more likely to keep rates at zero and embark on another round of quantitative easing (a.k.a. QE3). That's one reason the dollar is falling this week vs. other major currencies such as the euro, Swiss franc and yen.

In other words, just as American consumers face higher prices for necessities like gas and heating oil, the dollar literally doesn't go as far as it used to. With wages stagnant for most workers, that means this oil spike is going to be even more painful.

It's that last couple of lines that should scare the spit out of people...