No Stagflation

Mike Zaccardi

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 Treasurys 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 core 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 unemployment rate 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.

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