Fun with Google Trends: Stagflation

Wednesday, March 12, 2008 | 01:32 PM

According to Google Trends, it really is true: Stagflation = Recession plus Inflation







Wednesday, March 12, 2008 | 01:32 PM | Permalink | Comments (20) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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The number of articles published that mention "stagflation" have surged in recent weeks to a new extreme, highlighting investor angst and the headwinds for risky assets.

There is certainly plenty for investors to worry about in the current environment. The global economy and earnings backdrop continues to deteriorate, U.S. housing shows little sign of improving, and the credit crunch continues to intensify. Indeed, it would seem that each positive policy development is met with the fall of another sub-prime related domino. The latest development has been the failure of some investment firms to meet margin calls, sparking fears of forced selling and further deleveraging.

To amplify concerns, energy and food prices continue to surge, helping to stoke inflation fears.

However, we are less worried about broad-based price pressures. It is unlikely that rising commodity prices will lead to a rise in core CPI inflation because manufacturers will be unable to raise prices amidst weak demand. Moreover, the softening job market will help prevent second round effects.

Bottom line: Stagflation has returned as a hot word. However, as occurred the last time stagflation had its moment in the limelight in 1990, weak growth will soon undermine pricing power.

Posted by: Daily Insights | Mar 12, 2008 1:44:51 PM

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