ALL of a sudden, inflation is back. At least that's what one would be led to believe based on a resurgence of inflation articles, if not the re-emergence of That 70s Scourge itself.It seems that global growth is turning up the heat on prices. Remember those billion Chinese and Indian workers being inducted into the industrial labour force, offering their services cheaply to any and all bidders? That excess capacity is now gone, based on what I read.

How about the forces of globalisation, working to keep costs and prices down? A one-time event.

And what about the adoption of inflation targets by central banks around the world, more committed than ever to price stability? Central banks by and large are currently engaged in raising benchmark interest rates.

Sorry, that doesn't fit today's storyline either.

Wednesday's report on US productivity and costs just added fuel to already glowing embers. In a quarter when real gross domestic product barely budged — the economy grew 0.6 percent in the first quarter of 2007 — output per hour worked slowed to 1 percent, half the previous quarter's pace. Unit labour costs, or the cost of producing one unit of output, rose 1.8 percent, a little less than the average for the last decade.

Which makes you wonder what all the Sturm und Drang was about.

"The rise in unit labour costs is completely meaningless in a quarter when growth is flat," says Jim Glassman, senior US economist at JPMorgan Chase & Co. "Every move in the market doesn't have to be about the news we're seeing. There's lots of other stuff going on around us."

Glassman says the new news in the report, overshadowed by the hyperventilating over inflationary pressures, was the deceleration in hourly compensation to 3.2 percent on a year-over-year basis. "It was running at 5 to 6 percent last year," he says. "Now it's more in line with the ECI."

The Employment Cost Index, a measure of total compensation (wages, salaries and benefits) adjusted for the change in the job mix, for private industry workers rose 3.2 percent in the first quarter from a year earlier.

What's more, "if you try to explain inflation by unit labour costs over the last decade, you would have a difficult time connecting the dots," says Joe Carson, director of economic research at AllianceBernstein.

On a four-quarter basis, which smoothes out the noise, unit labour costs for the non-farm business sector rose 2.2 percent in the first quarter, the smallest increase in more than a year. For some reason, the punishment to stock and bond markets over the last couple of days doesn't seem to fit the crime.

Now, it may be that the improved trend in productivity growth starting in the late 1990s has run its course, that it's a structural shift rather than a reflection of the slowdown in growth. (Some paying client should ask former Federal Reserve Chairman Alan Greenspan this question, since he spotted the productivity improvement in the 1990s before it showed up in the data.)

"In the short-term, as economic growth slows, firms that aren't sure about demand conditions produce a smaller output with the same number of employees, which accounts for the slower pace of productivity," says Paul Kasriel, chief economist at the Northern Trust Corp. in Chicago.

That's why productivity is said to have a strong cyclical component. When business activity picks up after a recession, for example, corporations are slow to add workers. They crack the whip and work the current staff harder until they're sure increased demand will be sustained.

And while cost-cutting has become a way of life for US businesses, they don't want to lay off skilled workers prematurely, only to find the slump short-lived and themselves faced with the prospect of hiring and training new employees.

When I read articles about labour costs pushing up prices, it feels as if I'm living in a time warp. Labour unions have reduced bargaining power when corporations can shut a manufacturing plant and shift production overseas. And unionised workers have come to realise that their interests are increasingly aligned with management: If the company goes belly-up, a prospective pay raise is a moot point.

Still the idea that wages drive prices and inflation is something that never dies.

"This kind of thinking is deeply ingrained at the Fed," Glassman says. "It's as if wage gains are carved in stone. That may have been true long ago. It's not true now. There are more price takers."

All the hoopla over inflation is happening at a time when various inflation measures have rolled over. The core consumer price index, which excludes food and energy, rose 2.3 percent in the year ended in April, down from a 2.9 percent peak in September. The Fed's preferred measure, the core personal consumption expenditures price index, rose 2 percent in the past 12 months, the smallest increase in more than a year, bringing the gauge into the top of the Fed's comfort zone.

That's clearly no comfort to the folks unloading stocks and bonds. Inflation may lag the business cycle, but they see a new cycle dawning. The US slowdown is over, capital goods orders and manufacturing are picking up, and exports are benefiting from strong overseas demand. Inflation is sure to follow.

Don't uncork the champagne just yet.

"It's hard to get a U-turn in the economy without a corresponding rise in consumer demand," Carson says. "And consumer spending is showing incremental weakness."

Same-store sales slowed to a 2.2 percent average pace in the February through May period from 4.1 percent in the same period in 2006, according to the International Council of Shopping Centers.

Even if a growth comeback is at hand, the storyline lacks a key ingredient.

"Inflation is about what central banks do, not about globalisation and development," Glassman says.

With official central-bank rates heading up, can you guess which way inflation will go?

(Caroline Baum, author of "Just What I Said," is a columnist for Bloomberg News. The opinions expressed are her own.)