Stagflation's Back

August 17, 2004

Wall Street Journal: A Central Banker's Nightmare:
Inflation and Slow Growth Together

Defined as a noxious blend of stagnant growth and rising prices, stagflation last appeared in force in the 1970s, when it bedeviled U.S. policy makers and gradually degraded the standard of living of average Americans. Economists long thought a repeat to be extremely unlikely.

But now, they are starting to worry again. The fundamental problem: Oil prices are kicking up inflation across the world, at precisely the same time that economic growth appears to be slowing. If oil prices keep climbing, and inflation rates exceed growth rates, some economists say the U.S., Asia and other regions could face a troubling scenario in which policy makers have to fight some of the same demons that plagued the U.S. back in the days of disco.