Higher costs for energy and food last year pushed inflation up by the largest amount in 17 years. The industrial output was flat in December, which is more evidence of a significant slowdown in the economy.

Click the play button for more with CBN News reporter Charlene Israel and a Newswatch interview with economist Alan Reynolds.

Consumers turned into penny pinchers in December, wrapping up the weakest sales year since 2002 and also fanning fears of a recession.

The rising risk of inflation has prompted lawmakers to consider stimulus packages to give the economy a jump-start to either prevent a recession or at least lessen the severity of its fallout.

"The December downturn in retail sales and new concerns that auto loans and credit card payments could follow the pattern of mortgage payments and head south makes quick action on a stimulus package all the more necessary," said Sen. Charles Schumer D-NY, the chairman of the United States Congress Joint Economic Committee.

The Federal Reserve is closely watching to see whether the jump in food and energy prices becomes more widespread and starts pushing overall inflation higher.

On Tuesday, Citigroup announced a fourth quarter loss of nearly $10 billion and over $18 billion in bad investments.

"It's suggested that the global growth outlook has taken a downturn beyond what we were expecting, beyond what markets were expecting up until Christmas," said Martin Duncan, an equity strategist with JP Morgan.

Citigroup and Merrill Lynch have raised funds from foreign investors to help them deal with their losses from the mortgage mess.

Asian markets plunged early Wednesday on worries that the U.S. might fall into a recession. Such an event could lead to a slowdown in the global economy.

Analysts hope 2008 will be a year when things bottom out and things begin to recover in 2009.