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Inflation Hits Main Street: Small Businesses Raising Prices

If the drug store in Dillon, South Carolina founded by Ben Bernanke’s grandfather was still around today, it might be raising prices.

More than a quarter of small businesses are raising prices, or plan to soon, the highest amount in 28 months, according to the latest survey by the National Federation of Independent Business.

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The net percent of small firms that are actually raising prices is five percent, the first positive reading for this survey since the aftermath of the credit crisis. The net percent that “plan” to raise prices jumped to 21 percent in February from 19 percent in January, according to the poll of thousands of small businesses released earlier this week. Since 1986, the percent “planning” to raise prices has been a reliable leading indicator of the number that end up actually raising prices.

The steep positive slopes of these series lead us to believe we will see further advances in the April data,” said Joe LaVorgna, Deutsche Bank chief U.S. economist, in a report Friday that cited the NFIB data. “It’s going to be increasingly difficult for the Fed to argue that inflation expectations are stable. To do so will eventually strain their credibility.”

Large multinational conglomerates — who have the ability to hedge — can handle higher commodity prices resulting from the Fed's reflation play. But when it hits small business, the largest source of employment in this country, maybe it’s time for the Fed to rethink its position, economists and investors said.

The Fed chief is watching the core consumer price index, which excludes rising food and energy prices, but includes collapsing housing prices, as a benchmark for inflation. In the past, the central bank has not watched food and energy prices because they tend to be volatile. The survey from the NFIB, whose typical membership employs five people and reports average annual revenue of $350,000, is saying that food and energy matter more this time, because they’re doing nothing but going up.

Federal Reserve Bank of Dallas President was the latest member of the central bank to stray from Bernanke’s steadfast commitment to the second round of quantitative easing in place until the end of June.

“Indeed, it may well be that we should consider curtailing what remains of QE2,” said Fisher, a voting member of the FOMC, at a conference Friday. “There is the risk that we might breach our duty to hold inflation at bay.”

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Trader disclosure: On April 8, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova owns (C); Terranova owns (JPM); Terranova owns (VRTS); Terranova owns (UPL); Terranova owns (PBR); Terranova owns (TCK); Terranova owns (BAX); Terranova owns (XOM); Terranova owns (AKAM); Terranova owns (CNQ); Terranova is short (POT); Terranova is short (NFLX); Terranova is short (CAT); Terranova is short (F); Terranova is short (VLO); Karabell Owns (FCX); Karabell Owns (AGQ); Karabell Owns (GOOG); Grasso owns (AMD); Grasso owns (ASTM); Grasso owns (BA); Grasso owns (BAC); Grasso owns (C); Grasso owns (CPX); Grasso owns (CSCO); Grasso owns (D); Grasso owns (JPM); Grasso owns (LIT); Grasso owns (LPX); Grasso owns (MHY); Grasso owns (NDAQ); Grasso owns (PFE); Grasso owns (PRST); Stutland Owns (OIH), Is Short (OIH) Calls; Stutland Owns (GLD); Stutland Owns (SLV) Calls; Stutland Owns (F); Stutland Owns (GM) Bonds; Stutland Owns (BAC); Stutland Owns Australian Foreign Dept; Stutland's Firm Is A Market Maker In (SPY) And SPX Options; Stutland's Firm Is A Market Maker In VIX Futures And Options

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