It's the end of everyday low low prices I tell you

At least according to Jim Jubak of MSN Money.

It looks like the United States has seen the end of an amazing period of below-average inflation and above-average economic growth.

The gradual integration of China into the global economy gave us those good times. And now it looks like the Chinese economy is going to take them away.

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From 1993 through 2004, the economy grew faster than average, and we all paid a smaller-than-average inflation tax on everything we bought. Win-win.

Conventional economics says you aren't supposed to get this kind of a free lunch. If growth is higher than average, the economy is also supposed to deliver higher-than-average inflation. Lower-than-average inflation is supposed to be forever linked to lower-than-average growth. The persistence of a win-win economy with above-average growth and below-average inflation was one of the great puzzles of Alan Greenspan's later years at the helm of the Federal Reserve.

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That capital, available for investment in new factories at low interest rates, fueled the global boom in real economic growth. (This low-cost capital also fueled the technology bubble that burst in 2000 and the real-estate bubble that began to deflate in 2007 -- so maybe conventional economics is correct and there is no such thing as a free lunch.)

The lower-than-expected inflation came from low-wage, low-cost manufacturing countries -- China, India, Vietnam, etc. As more manufacturing (and manufacturing jobs) moved from the U.S., Europe and Japan, these developed economies imported larger quantities of low-cost goods. In addition, manufacturers remaining in the developed economies were able to import cheaper subassemblies and cut the cost of their own products.

Economists have dubbed this the Wal-Mart effect. Low prices at Wal-Mart Stores (WMT, news, msgs) and other big-box discounters had a multiplier effect because low prices at these stores acted to depress competitors' prices.

But now it looks like the process has gone into reverse. China is now increasingly exporting inflation.

The cause of that inflation? The usual suspects

Rising wages for an expanding middle class
Labor shortages
Increased costs of raw materials (steel, plastics, etc.)
Increased transportation costs
And as we have discussed before - allowing a Yuan that has been kept artificially low against the dollar to rise. (one of the good things about a weaker dollar)

Jubak thinks this means bad things for the US economy, and in a way he is probably right. It is unlikely that inflation and growth will remain as divorced as they are now forever, but in the long run I think it works out to our benefit.

First - Higher overseas production and transportation costs means it becomes profitable to move jobs back to the US. Not all or probably even most but some and my personal opinion is that it's a good thing to have a robust manufacturing base on-shore.

Second - The expanding Chinese middle class is one of the drivers in increased oil consumption which is raising oil prices. It doesn't account for the entire 400% rise over that last 6 years but it drives a significant portion of it. Eventually the price will hit the point that even people like the super-evil Maria Cantwell (arch-enemy of the poor) will have to support expanded exploration in the US as well as development of oil shale, and coal to gas technologies. This combined with other alternative energy sources should secure our energy independence. That reduces the importance of places like Venezuela and Iran to zero. That's a good thing.

At least that's the way I see it. Short term pain for significant long term gain.