If Canada's economy is recovering but still in the sick bay, why are some economists and analysts worried about inflation? Not just garden-variety inflation, but the kind of income-eating inflation we saw in the late '70s?

The prospect may seem silly to many. How could we be worried about inflation when just this week, we heard the consumer price index was in negative territory in August for the third straight month, that overall prices were lower this year than last?

Moreover, isn't inflation usually the product of a roaring economy? Prices rise when happily employed workers demand higher wages and retailers feel confident enough to inch up prices.

Our economy at the moment sure isn't roaring; it's sputtering, at best. Our unemployment rate is at 8.7 per cent. In the U.S., things are even worse with the unemployment rate climbing toward 10 per cent.

Both the Canadian and U.S. governments are trying to keep things moving by pumping money into the system in the form of stimulus packages. But that's precisely the problem, some say.

Stimulus spending, both here and in the U.S. will lead to deficits, and sooner or later, that will lead to inflation.

Investing legend Warren Buffett raised the point in an op-ed piece in The New York Times last month. He noted that all that money the U.S. government lent to the big banks to bail them out of the credit crisis earlier this year may very well have helped to avoid the death of the U.S. economy.

But "enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects," he wrote.

Most nagging of those "side effects" Buffett refers to in his dying-patient metaphor is debt. For now, Buffett said, the debt and other side effects can likely be ignored for a while. "Still, their threat may be as ominous as that posed by the financial crisis itself," Buffett said.

The U.S. is hardly alone in having a huge deficit hanging overhead. France, the United Kingdom -- indeed most of the G8, have all posted large budgetary shortfalls. And Canada, which once took pride in running one of the tightest ships in the G8, now predicts a 2009 budget deficit of $55.9 billion and says it will have to run deficits until at least 2015.

So are deficits in and of themselves wrong? Not at all. As the old adage goes: sometimes you gotta spend money to make money. This is not the first time governments have tried to spend themselves out of a recession. The problem lies in how that spending is financed.

To increase the money supply when tax revenues are down because of fewer citizens working, governments can simply print more money and issue bonds. That's what the U.S. has been doing, but it's a tactic many worry will lead to inflation.

Many of us have can't even remember life during times of runaway inflation. But any Canadian who owned a home in the early '80s certainly does. They can tell you of the days when surging inflation forced central banks to jack up interest rates sky-high, creating mortgage rates in the high teens.

These days, one of the few positive side effects of our dismal economy has been that interest rates have been brought down to record lows. If you've got a job, it's never been a better time to buy a house or a car on credit.

While some economists don't see rates getting anywhere close to '80s levels, it seems clear that as the Canadian and U.S. economies show signs of returning to life, rates are going to have to rise.

Investment analyst Marc Faber, author of the widely read monthly investment newsletter  "Gloom Boom Doom Report," believes money printing will eventually weaken the U.S. dollar and spur crippling inflation.

In a recent interview with BNN, the contrarian analyst worried that governments seem to be throwing money at the system, through stimulus packages and monetary easing, with no thought of how to repay that money.

"Government debt will continue to increase as far as the eye can see because of the contingent liabilities that will kick in in five years time from Medicare and Medicaid and Social Security. So I think in the long run, we will have inflation," he said.

Faber has suggested that when the economy begins to show signs of accelerating and the time comes for central banks to raise interest rates, they will be reluctant to do so. After all, who wants to be the one to take away the punch bowl at the spending party, turn on the lights, and tell everyone it's time to sober up and focus on the deficit?

Faber has even gone so far as to suggest the inflation problem could come on so quickly, it could lead to the kind of "hyperinflation" seen in Zimbabwe. There, after the government attempted to print new money to pay for its looming debt, the country found itself with an inflation rate at a mind-boggling 200 million per cent.

Sal Guatieri, a senior economist at BMO Capital Markets says his team of analysts doesn't lose sleep  worrying about a return to hyperinflation.

Guatieri concedes that in the past, the U.S. government has found itself with high inflation, particularly after the Second World War, the Korean War and the Vietnam War.

"But I don't think that would be the case this time," he told CTV.ca in a phone interview. "I think governments have learned a lot from past history, that there's no free lunch. You can't print away or inflate away the debt."

Guatieri points out that if there are worries about inflation, they're years and years away. He says it's nearly impossible to have inflation pressures in an economy as tenuous as ours at the moment. Retailers can't increase prices when shoppers have stopped spending and workers can't bargain for higher wages when unemployment rates are so high.

He expects the U.S. government will continue to recover but that its recovery will be slow and steady, not sudden.

"I think once the recovery is gaining traction, the government will turn its sights to reducing the deficit to sustainable levels," he said.

But, there are signs not everyone agrees.

Gold prices, for example, are on the rise. Gold is typically a hedge against inflation, so when prices rises, it suggests investors are worried that the dollars they hold today, may not be worth as much tomorrow. In recent weeks, the price of gold has surged past $1,000 an ounce.

Oil prices have also been surging of late, another portend of re-emerging inflation. Oil is now over US$70 a barrel, way up from $30 just a few months ago.

Unlike oil price hikes of the recent past, this one seems to have no relation to either supply, which hasn't changed much of late, or demand, which remains anemic. Instead, it may be another sign that investors have lost faith in the dollars they hold.

With commodity prices surging, it appears a growing contingent of investors must not be not happy with the way governments are pumping money into the economy and the crushing deficits that go with that. For now, those contrarians seem to be in the minority. But could the gold bugs be on to something?