Tuesday, January 31, 2023

Stagflation? Not Even Close | Investing.com


This article was originally published at The Humble Dollar

WE SPEND TOO MUCH time worrying about stagflation. The term describes a period of high inflation with stagnant growth—a disastrous economic condition. It was seen at times during the worst of the mid-1970s recession, and again when inflation spiked in the early 1980s.

Do we see it today? No way.

Everyone over 60 surely recalls how difficult it was decades ago. Consumer prices were out of control. The unemployment rate jumped. Real wages were on the decline, while stock and bond prices were also dropping.

Blogger and investment expert Michael Batnick notes that the S&P 500 fell 51.8%—including dividends, but after inflation—from January 1973 to September 1974. At the same time, long-term Treasuries experienced a real bear market of their own, losing 21.1%. Real gross domestic product (GDP) contracted 2% in 1974. The Misery Index, which adds together the unemployment and inflation rates, soared to 20 that year. It was the worst of times, part I.

The early 1980s brought part II. The Misery Index again spiked above 20. The inflation rate peaked just shy of 15%, while the jobless rate climbed to 7% in 1982. Real GDP growth was barely above zero from 1979 through 1982.

That was stagflation. Today’s economic landscape doesn’t compare. Sure, a lot can change, as fellow HumbleDollar writer John Lim recently noted. But inflation looks to top out early next year at around 5%, according to Bank of America analysts. Meanwhile the Federal Reserve’s GDP growth estimate eases from 5.9% in 2021 to a still-robust 3.8% in 2022. Next year, the might even dip under 4%, or so says the Federal Reserve.

As we head into the holiday season, let’s put away this nonsense that stagflation is gripping the U.S. economy. We could conceivably get there. But we aren’t anywhere close right now.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Source link


Please enter your comment!
Please enter your name here



Related Stories