This Dreaded Specter Of The ‘70s Threatens To Haunt Markets Once Again

This Dreaded Specter Of The ‘70s Threatens To Haunt Markets Once Again
Andrew Rummer

over 2 years ago1 min

Mentioned in story

As inflation picks up rapidly just as key economic indicators weaken, talk of “stagflation” – the dreaded combination of economic stagnation and high inflation – is soaring. 

The chart shows mentions of “stagflation” in news articles, as tracked by Bloomberg. More than 800 articles last week mentioned the term, the most in at least a decade. 

As we head towards the end of the year, the initial economic euphoria that greeted the easing of pandemic lockdown restrictions in many parts of the world is starting to cool. At the same time, supply chain disruptions are helping push up the price of goods and boosting expectations of runaway inflation.

We have to go all the way back to the 1970s to find the last period of sustained stagflation in North America or Western Europe. And, worryingly, weak economic growth and spiralling prices for day-to-day goods is the worst possible combination for investors – undermining the value of both stocks and bonds. 

Still, stagflation concerns don’t for now seem to have broken out of the media and pierced the wider public consciousness. Check out this chart of Google searches for the term, which are in line with their five-year average.  

Google searches for stagflation

Investors should hope the media is overreacting. After all, if the clogs in the global supply chain can be cleared in coming months it’ll both bring down inflation and goose the economy. Fingers crossed!

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