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Don't Look Now, But Stagflation May Be Here
 Stubbornly high unemployment has been the bane of this economic recovery. Inflation has been creeping higher for months. And on Wednesday, data tied to a key manufacturing index was disappointing, to say the least.All of this turmoil has kicked up the volume on warnings that the U.S. is headed into a period of stagflation, a dreaded economic condition marked by sharply rising consumer prices accompanied by miniscule growth. Consider what that would mean to the average consumer who has to pay more for everything from a gallon of milk to a new car, but can't expect a raise any time soon because his company is just getting by. And that's assuming that the consumer has a job at all. "To me the definition of stagflation is rising prices while there's a soft labor market. If those conditions were mutually exclusive we wouldn't have the word stagflation," said Larry Elkin, president of Palisades Hudson Financial Group, a financial planning and investment management firm in Scarsdale, N.Y. Here are the numbers, just from today, that have reignited talk of stagflation: the Consumer Price Index, a widely watched inflationary gauge, rose 0.2% on a month-over-month basis. Economists had predicted the index would rise 0.1%. Minus food and energy prices, which are viewed as more volatile than the costs of other consumer goods, the index was up 0.3% compared with expectations of 0.2%. And year over year, overall inflation jumped 3.6%, while core inflation (minus food and energy) was up 1.5%. Economists had predicted 3.4% for overall inflation and 1.4% for core inflation. So inflation numbers came in higher-than-expected across-the-board. At the same time, the Empire State manufacturing index for June was an eye-opener. The index came in at -7.8 versus expectations of 12. On top of it all, throw in unemployment, which jumped back over 9% in May. "This is what a mild case of stagflation looks like, and it doesn't look very good," Elkin said. Oh boy! Summer of Wreckovery II is well underway I see! Posted by: DarthVader 2011-06-17 |
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