The post-Katrina job figures are out now and the 35,000 job loss isn't nearly as bad as was predicted. What has that to do with inflation?
If the economy grows faster than there are resources available, like we need 5,000 new workers to fill factory orders but only 4,000 are available, then there is competition for the resource of labor. So companies offer more money to workers to make their goods, and the Cost of Goods Sold increases, and then the price of the good sold is greater.
A lot of shortages in resources means that prices will be going up overall in the economy. That is called inflation. Traditionally, the Fed has tried to keep a lid on inflation by raising interest rates. The reasoning is that if it is more expensive to borrow money, then less people will be demanding a resource and with less demand, there will not be price competition.
The disaster of the '70's threw all of this logic in the toilet, however. A couple of reasons have been offered for this: huge influx of women in the workplace which effectively increased the number of workers in the US by a LOT in a short period of time, and the shock of rapidly increasing oil prices which affect many products and not just running our cars.
So where are we going now? Are we going to have high unemployment along with inflation? We definitely will have higher interest rates from the Fed since Greenspan is keeping a gimlet eye on employment numbers. The latest numbers show there is a lot more people working than was expected. So the resource of labor is in shorter supply than the eggheads thought. You and I might think of more people working as a good thing, but Wall Street sees ever higher interest rates and gets depressed.