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What is “Stagflation?”
By JLP | February 21, 2008
Today’s Wall Street Journal featured a front-page article about stagflation fears ($). From the article:
The U.S. faces an unwelcome combination of looming recession and persistent inflation that is reviving angst about stagflation, a condition not seen since the 1970s.
Inflation is rising. Yesterday the Labor Department said consumer prices in the U.S. jumped 0.4% in January and are up 4.3% over the past 12 months, near a 16-year high. Even stripping out sharply rising food and energy costs, prices rose 0.3% in January, driven by education, medical care, clothing and hotels. They are up by 2.5% from the previous year, a 10-month high.
What’s stagflation?
Here’s the definition of stagflation according the Barron’s Finance & Investment Handbook
STAGFLATION term coined by economists in the 1970s to describe the previously unprecedented combination of slow economic growth and high unemployment (stagnation) with rising prices (inflation). The principal factor was the fourfold increase in oil prices imposed by the Organization of Petroleum Experting Countries (OPEC) cartel in 1973-74, which raised price levels throughout the economy while further slowing economic growth. As is characteristic of stagflation, fiscal and monetary policies aimed at stimulating the economy and reducing unemployement only exacerbated the inflationary effects.
I found that last sentence interesting:
It seems to me that the Fed’s rate cuts are only going to add to the inflationary pressures and do more harm than good. I think there are times when we just have to face the music and allow things to play out like they are supposed to and quit trying to change fate.
Topics: Credit, Housing Market | 1 Comment »
February 22nd, 2008 at 1:06 am
That really kills me that Barron’s can’t get proper attribution on a quote and yet Minyanville can (as did the WSJ the other day).
http://www.minyanville.com/articles/index.php?a=15995