(MONEY Magazine) – Among the concerns holding down the stock market is the sneaking suspicion that there ought to be inflation. Commodity prices are up, productivity is down, and the minutes of December's Federal Reserve meeting show policymakers are worried. Yet the latest consumer price index numbers look benign. So are higher prices coming? Below, two leading stock market watchers offer contrasting views.

You can count Ed Yardeni, chief investment strategist with Akron mutual fund manager Oak & Associates, among the bulls. He predicts inflation will remain around 2% for years to come. His reason: As the U.S. and the rest of the world embrace free trade, competition increases, which keeps prices down. "Energy prices are high, commodities have gone up, health-care costs have gone up. But can these increases be passed through to the end user? For the most part, they can't," he says. So businesses must innovate or suffer lower profits.

Thomas McManus, chief investment officer for Banc of America Securities, disagrees. "Companies have been disappointing shareholders [with lower earnings] rather than customers as costs rise," he says. "But they can't disappoint investors continually, so companies will have to start raising prices."

McManus notes that makers of luxury goods and low-end staples like candy bars are already raising prices. He expects prices to jump 3% in 2005, 30% more than in 2004. True, that's a single percentage point more than Yardeni sees, but it's significant: Yardeni is as bullish on the stock market as he is on inflation. McManus thinks that with rising inflation and low stock-dividend yields, the market has nowhere to go but down.